Turnaround for Thai resort towns: Savills

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Turnaround for Thai resort towns: Savills 
Bangkok Post: 24 Jan 2010
Turnaround in resort towns

Developers bide their time and resist urge to slash prices, though for investors it's still a good time to buy

Although the profiles differ of buyers in key Thai resort markets - Pattaya, Hua Hin and Phuket - all three markets are subdued right now. However, a turnaround is on the cards and the good times will start rolling again, says Robert Collins, managing director of Savills (Thailand).

Research by Savills shows that as many as half of the buildings launched since August, 2004, when Raimon Land's Northshore condominium in Pattaya ushered in a new upturn, appear to be floundering. Only a handful have withdrawn from the market, but at the same time fewer than half of the total have yet to break ground or provide confirmed completion dates.

Confirmed completed supply totals around 26% of the units originally announced, and confirmed sales stand at 62%. Seven buildings that are due to finish look healthy and they will benefit from a lack of competition. Among these are Northpoint, Cove and Sanctuary.

However, he added that the demand in Pattaya remains subdued and although there are new buyers coming, typically foreigners at mid-level prices, it remains hard to target new demand.

"The Thai quota is still proving to be quite a challenge," said Mr Collins. "In most cases of the confirmed supply the foreign quota [a maximum 49% of space] was heavily sold out already and it's the Thai quota that is holding back these buildings from going from, say, 60% to 80%, and take sales to 95% to 100%.

"So the market in 2010 is really expected to slowly fill up and absorb the unsold inventory in the buildings due to complete. And I think of the 50% of developments that have effectively semi-withdrawn from the market, we will see some buildings that were slightly further ahead of being successfully completed come back onto the market."

Mr Collins said the current situation means that prices for Thais are more favourable than for foreigners because developers need to fill up the Thai quota.

"There is a degree of two-tier pricing policy in place, which is really understandable in these times and it is in the interest of the foreign quota to have the Thai quota filled up - it makes for a healthy building when you have a higher occupancy. So yes, it's a good time for a Thai buyer to be looking at the market."

Attractive prices for Thais in Pattaya will last this year but will slowly diminish. "There will be a dry patch before the next wave of high-end product comes online which is probably quite a few years away in terms of the construction timetable."

SURVIVORS: Andara Resort and Residences, developed by Hong Kong tycoon Allan Zeman, is one of the few developments in Phuket to have defied the recent property downturn.

Mr Collins has also observed that buyers can get into the Pattaya grade-A condominium market for around 65,000 baht a square metre, with many units available in a range of 80,000 to 100,000 baht per square metre.

There are a few projects changing hands at 110,000 to 130,000 baht a square metre but the volume is usually minimal.

However, the market is really at the grade-B level with prices between 30,000 and 50,000 baht a square metre.

It has also become increasingly evident that some projects in Pattaya have been successful because many of the original buyers were speculators who bought off-plan for investment and did not intend to occupy the units.

"Often it is the speculators that make more money than the developers because their investment is relatively minimal and their ability to exit the transaction much higher. They are often the winners in the property market, particularly in Pattaya in the last three years."

While Hua Hin's property market differs from that of Pattaya, with more low-rise developments and far greater focus on villas for foreigners, Mr Collins said it had not fared any better in the last six months of 2009 in real terms.

"A lot of new supply is coming up for completion this year and there is a market expectation that once some of the new developments are completed, say around mid-year, sentiment would hopefully have recovered by that point and sales would have picked up again," he said.

"But the outlook for Hua Hin is certainly in many respects less competitive and more favourable than Pattaya."

Similar to Pattaya, this is the best time to buy property in Hua Hin in the last four to five years. "There are developers that are far more willing to negotiate transactions than there have been in a long time."

Phuket is similar with low transaction volume, except for isolated developments, notably Andara Resort and Residences, where sales have been extremely high.

"The general trend for high-end property in Phuket is subdued and buyers are seeking out and taking comfort in the terms of the developers' liability on the completion timing and the quality of the sales and purchase agreement - title structure is becoming of paramount importance."

Mr Collins added that foreign sentiment toward million-dollar villa pricing has also become more reserved because they have been affected by the same issues that Thais have faced in Hua Hin and Pattaya.

"Until wider issues are resolved the free flow of money into high-end homes is being held back. And that has been seen by construction slowdowns in quite a few of the projects. Supply is greater than demand so not all the developers are winners and the ones that are are clearly far exceeding the market."

Despite this, Mr Collins has observed that there is no trend of buyers slashing prices to fire-sale levels in order to exit the transactions. "It's partly because the market hasn't gone into a panic and there isn't an expectation that prices have come down sharply."

Also shoring up the prices is the relatively low number of homeowners. Those who have bought these pricey properties also are typically cash buyers who have been able to weather the international storm.

Mr Collins said there was also a clear trend for villa buyers in Phuket to upgrade within the developments they have bought. They do this by selling the original property for profit and then buying a more expensive one. "There is certainly no expectation that the market will crash in Phuket, but at the same time we are not seeing any surge in demand that justifies an overly aggressive new launch. That would be premature and would be misreading the marketplace."


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