Phuket Market Rebounds
May 23, 2011 - Phuket
Sales activity has rebounded in Phuket according to Mr. David Simister, Chairman of CB Richard Ellis (CBRE) Thailand.
CBRE tracked sales through their Phuket office and research team and note that there are more sales and active enquiries in the first quarter of the year than in 2010, signalling a recovery in the market.
Mr. Simister said at a recent conference on resort markets, "Phuket remains the pinnacle destination for second home purchases in South East Asia, with the villa market topping the charts in terms of the range of high-end developments and the prices paid.
Neighbouring country's resort markets do not have the same international desirability as Phuket. The Vietnam market has a significant number of new projects but it is only really attractive to domestic buyers.
Bali, Phuket's main competitor does not attract the same volume of tourists and more importantly high income individuals and property buyers".
The 2008 - 2010 Q3 period saw a slowdown in the market triggered by the global financial crisis, although Phuket prices held firm and there were very few distressed sales.
However, there was a clear shift from off-plan sales to resale units. Within the resale market, hotel branded villa products with a good reputation and good management were the top sales performers with Andara being the most desirable.
As the most successful hotel branded sales project on the island, Andara has delivered both quality and luxury, with high attention to detail and immaculate standards, all of which ticked the right boxes for buyers.
CBRE was delighted to be involved the success of Andara, advising clients on six transactions. The development has now sold out.
CBRE Research's new Phuket Report shows that the latter part of 2010 was the turning point for the villa market, with increased activity in the luxury sector.
The high season period continued to drive interest with more than 20 villa transactions in Q1 of 2011, indicating increased buyer confidence.
However, developers cannot become complacent, while the market shows signs of recovery, developers need to realize that the number of buyers has reduced, the buyer profile has changed and the criteria for successful sales is much more precise.
Ms. Eilidh Callum, Senior Economist at CBRE said, "Projects devised before 2008 that were temporarily postponed will not necessarily succeed in today's market, it is not just a case of proceeding as before, adding an extra bedroom, larger pool or replicating other previously successful developments, in this new era much more thought has to be given to the design and final product if it's going to appeal to today's buyers".
A further change in buyers' behaviour is the level of consideration given to assessing quality, specifically ongoing property management. Buyers in all segments of the market are seeking good quality management programs, so they can be confident that their asset will be looked after in their absence.
Amanpuri was one of original and most highly regarded hotel villa management programs, followed by Laguna and more recently Trisara and Andara. Where hotels are not undertaking the management, CBRE dominates luxury villa and condominium management.
In our experience buyers have grown tired of developer run schemes and are now seeking hotel or internationally experienced professional firms to manage their resort home and investment.
Projects without good quality management risk deprecation in value. In CBRE's opinion, good management is the key to long-term capital appreciation.
CBRE research shows that sales activity is now dominated by end users rather than investors who buy for capital appreciation and rental returns.
"We are seeing much more enquiries and increased sales from high-net worth individuals, especially from Russia and India," said Ms. Prakaipeth Meechoosarn, Director of Resort Residential Sales, CBRE Phuket office.
These buyers are successful business people and entrepreneurs; they are financially independent and are typically seeking large four and five bedroom pool villas that offer high quality fitting and finishes in a good location with oceanfront views.
These buyers want to take advantage of luxury tropical lifestyles without the forced restrictions from leaseback schemes or compulsory rental pools.
"There are currently two or three popular projects in the USD 5 million and above segment of the luxury market that offer products which meet the buyers' needs.
The success of these projects is based on the buyers' individual choice," said Ms. Prakaipeth.
At the other end of the market, CBRE also notes an increase in demand for entry-level villa products priced around THB 5 - 10 million.
Despite the global situation, buyers still want to own a tropical home and buy into the Phuket lifestyle, but with less equity than before and with rising construction costs these buyers are not expecting sea views and their focus has shifted to more affordable and attainable villas that represent good value for money.
Demand in this segment of the market is predominately from European residents who prefer completed or significantly completed developments.
In all market segments the west coast is the preferred location, although some buyers prefer to move further up the west coast to Phang Nga to obtain oceanfront beach property rather than purchase inland or on the east coast. CBRE are the sole sales agent for Les Résidences Khao Lak".
We have seen a number of our clients considering Les Résidences as an alternative to Phuket" states Prakaipeth Meechoosarn.
The rising land costs, higher construction costs, more stringent planning regulations and limited prime beachfront sites means there is a lack of new supply on Phuket's west coast.
Les Résidences is located on an absolute beachfront site, comprising 20 beachfront and pool view villas and offering spectacular views and direct access to the project's own private beach, both of which are key deciding factors for foreign buyers purchasing villas".
Overall the signs are positive and the market is in recovery. However, the market has entered a new era. Ms. Callum stated, "We are concerned that developers have not taken note of the changes in the market, they have taken on board the signs of recovery but they are failing to focus on the right market.
We are confident in the market, we see it both broadening and growing going forward. CBRE has been busy in Phuket advising clients who are revisiting previous development assumptions.
Taking on board our advice, clients have now redefined their products to succeed in today's market conditions".
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