September 2005
Market Focus
Still on top
With the negative international media coverage that wrongly portrayed the post-tsunami situation on the cosmopolitan island of Phuket, the world would nod knowingly if the island's competitive regional property prices had plummeted, but to the contrary.
By Kerrie Hall
The reality is five per cent of Phuket island's coastline was seriously affected by tsunami damage and educated investors realised the tsunami was an unprecedented natural occurrence. Since last December 26, the property market has not suffered on Phuket. Property prices are stable and look forward to increasing, as expected, on par with recent trends - a rise of 100 per cent every three years, according to local property industry sources.
"The tsunami has not affected our business. In fact, we have doubled our business in the first six months over last year," says Siam Real Estate CEO Richard Lusted.
"The market for Phuket property is very buoyant and there are over 130 new developments taking place, most selling off plan and selling well".
As a retiree or holiday investor, the price of Phuket real estate remains ever-attractive to southeast Asian and Western buyers who recognise the value for money and potential of a burgeoning economy, combined with an international airport that caters to direct flights from Australia, Hong Kong, Singapore, Kuala Lumpur, Indonesia and Europe and incomparable coastal beauty and international lifestyle. Marina and golfing lifestyles together with international schools, shopping and business opportunities add to the broader buyer appeal.
"The Hong Kong and European markets continue to drive demand. A strong sterling and euro are making Phuket look very cheap versus a bed-sit in Chelsea or a marina condo in Marbella; whilst in Hong Kong the quality of life continues to deteriorate badly," according to Indigo Realty director Nick Anthony.
Positive images of Phuket's post-tsunami recovery efforts are now filtering through world media and this, coupled with the initial exposure of the island after the natural disaster, means that Phuket is now firmly on the world map.
"More and more people are still, surprisingly, discovering Phuket," says Wayne (Red) Graham of East West Properties (Phuket). "Hong Kong is my major market, and I still see it as the biggest growth area, but I do see new buyers coming out of Malaysia and Singapore."
Larry Cunningham of Phuket One Real Estate agrees that Phuket now is under the international investment property spotlight. Prior to last December, he says his ratio of Phuket property sales compared to number of walk-in enquiries was 1:5, which is a happy outcome for any realtor.
"Now my conversion ratio is an outstanding 1:3 on Phuket," he says "in comparison to my Australian real estate offices which are presently 1 in 20 sales from enquiry".
Interestingly enough, Australia's property market has been relatively stagnant since last December. With the exception of a few tropical sea-change destinations on the eastern coastline, such as northern Queensland, the industry has some time to kill before a recovery looks likely, despite a recent capping of interest rates.
A recent news report ('Boomers must sell homes to retire', The Australian 06/06/05) indicates that the next generation of Aussie retirees will be hard up maintaining a comfortable retirement lifestyle unless they sell their homes.
"Secret Treasury documents reveal the Howard Government has been warned the nation's four million baby boomers will have to sell their homes or work longer to have enough savings for a comfortable retirement," cites the article's author Michael McKinnon.
"Since the superannuation guarantee was only introduced in the early 1990s and only recently (on July 1, 2002) increased to 9 per cent, there are many Australians who will be retiring without having been in the fully matured superannuation system for their entire working life," the document says.
There are an estimated 4.1 million baby boomers - the post-World War II generation born between 1946 and 1961 - and the first boomers are due to retire aged 65 in 2011. The 2002 Treasury documents refer to a research paper from the National Centre for Social and Economic Modelling - released under the Freedom of Information Act - saying that "with the SG (superannuation guarantee) system not yet mature, over the shorter term many will find their retirement incomes well below expectation and early retirement unaffordable".
"To some extent this is true, particularly for individuals relying solely on the SG, but the solution lies with individuals saving more within a favourably taxed environment, working longer or using the capital tied up in their homes," Treasury documents state.
With less superannuation and savings than their younger working counterparts, Baby Boomers may be much better off cashing in their super funds, selling up and buying property on Phuket where a comfortable, easy lifestyle awaits with new luxury homes and villas costing a fraction of similar property in the West.
Fortune Magazine suggests just that. The top international business magazine hails Phuket among the top five "idyllic places … where you can still live like a king on what you've saved".
Titled "Paradise found: where to retire abroad", the magazine chose Phuket - along with San Carlos de Bariloche in Argentina, Dubrovnik in Croatia, Boquete in Panama and Merida in Mexico - as idyllic yet affordable places to live.
The recent article uses Phuket Gazette founder John Magee as an example in Phuket, describing how he frequently visited the "indescribably beautiful" island while working as a banker in Hong Kong, before moving to Phuket in 1992.
Citing the island's golf courses and hospitals as plus points for retirees, Phuket came out second least expensive of the five (Fortune, Issue 1, Volume 25 28/06/05).
According to Larry Cunningham, 2005 has seen an increase in Australians buying investment property on Phuket and also an emerging trend in the Baby Boomer generation purchasing here with friends and neighbours from their communities in Hong Kong. The main drawcard he sees is value for money and low cost of living compared to the West and other more established retirement havens.
Cunningham says his interest peaked with one buyer from Tahiti and he wondered "why on earth the man was moving from one tropical island in paradise to another"? The answer was cost of living.
"This French gentleman realised he could employ a driver, a gardener, a chef and a maid on Phuket for the same money he spent employing just one gardener in Tahiti," he said.
Graham Bibby, Chairman & CEO of Richmond Group Asia Pacific is also confident that retirees will have a significant impact on the island's real estate market in the coming years.
"The next phase of growth in Phuket will be the retirement market," he said. "I don't mean old age pensioners, but people in their 50's who are looking for retirement property. I recently wrote an article for Millionaire Asia in which I argue that this is the calm before the boom. The statistics post-tsunami are almost identical to what happened to Bali after the bomb. In the longer term there's a lot more potential here because there's a lot more things to do when people retire. In terms of a boom, we haven't even had one yet, so I'm very optimistic."
Some prospective buyers expected prices to fall dramatically on beachfront land following the tsunami but, as prime coastal land is now a rare commodity on Phuket, prices are well maintained, according to Mr. David Simister, Chairman of CB Richard Ellis (Thailand) Co., Ltd. According to Bangkok-based Simister, there are active purchasers on Phuket, buying at all levels, provided that good design, planning and management are provided at each level.
"We see the market for residential property as largely unaffected and stable, and do not believe that the customer profile changed as a result of the tsunami, except that we see more informed and knowledgeable buyers," Simester said.
"Tourism suffered from the tsunami much more than the real estate market; however, recent accounts in the press of charter flights from Europe resuming in the high season, and reports from hotel operators that they are fully booked in the peak of the high season let us anticipate a good recovery of tourism in the coming months".
Simester believes that developments to date indicate that in the future Phuket will contain a much wider offering of property.
"There will be highly prestigious marina and golf projects, for example, the positioning of Royal Phuket Marina will be similar to that of Porto Banus Marina in Marbella, Spain. At the other end of the spectrum, there will be more value for money apartments and bungalows without direct sea views, but offering convenience, economy, and accessibility to the facilities of the island. We believe the Phuket market has only one way to go, which is up in terms of volume of sales and range and sophistication of properties and facilities offered."
The realtors surveyed revealed that an average of 80 per cent of purchasers were looking to buy established, managed villa properties or condominium apartments while 20 per cent preferred to build their own homes. With freehold ownership of condominiums, sales in the B5-20 million range are popular.
From Phuket's north-west coast to the length of the east coast, private villa estates are increasing in popularity, with international variations of villa design and top quality local and imported finishes attracting a discerning global buyer. Projects such as the contemporary Layan Estates - a beachside, gated community of 18 villas set on 12 acres of forested hills. Buyers are a varied 'united-nations' set from Hong Kong, Singapore, Australia, the United Kingdom, Europe and North America.
Other projects in the area, such as the top end Layan Ocean Villas (B35 million plus), the residential apartment and boutique resort and spa project Tamarind Hills and the newer Layan Sunset continue to attract a great deal of investor interest and ensure that the whole Bang Tao/Layan beach area holds onto its pre-eminent position amongst the island's property hot spots, as it has done for several years, thanks in large part to its proximity to Laguna Phuket and the airport. The last year has seen a surge of interest in east coast properties though also.
Moving away from the coastal areas, Anuphas Pirom Resort Co. Ltd. are betting on the serenity of the golf course environment with their Baan Cocoon ‘Fairway Homes’ at Phuket Golf & Country Club. Aiming at the luxury segment the villas are centrally located with convenient access to the island’s major facilities and thoroughfares.
Ian Mitchell, of International Property Consultants, a property construction company currently developing the upmarket, sea-view Paradise Heights villa estate at Cape Yamoo on Phuket's north-east coast, says that many European clients, in particular, appreciate the serene beauty of Phang Nga Bay and wish to add personal touches, from a wide range of quality local and imported natural finishes available, to their new holiday or retirement villas priced between B8 and 35 million. While most purchasers are from the UK and Europe, Mitchell believes that the Asian market will be firm when the east coast is properly discovered.
"We were the first developers to recognise the superior location of the east coast cape of Yamoo, and we expected our sales to be a little slower than the traditional west coast market until customers discovered the benefits of this area. So I believe the uplift in sales is mainly due to the fact that this cape is becoming known as the future best location on Phuket. Paradise Heights, the Philip Starck/Jean-Michel Gathy designed Cape Yamu development nearby and Grove Gardens are all high end developments which will reflect the future quality of this area," Mitchell said.
Paradise Heights is a three phase estate covering 45 rai. The first phase is sold out except for one 750 sqm villa with stunning ocean views priced at B30 million. The second phase, a total of eight 3 and 4 bed villas with pools and sea views, begins construction in September. Phase 3 is due to start before the year end. The project is a prelude to the new 500 rai beachfront Paradise Bay Marina Resort project starting before the end of 2005.
"Within two years the first phase will provide an international marina, leisure and residential opportunities second to none. This will be a unique development on Phuket," says Mitchell.
Sophisticated international architecture and construction technology throughout many of the island's new projects is drawing a deeper and wider base of buyers, says Nick Anthony. One such project with a new level of sophistication is Puravarna Estate at Nai Harn near Rawai in the islands south. Described as "a lost kingdom", this six-star villa resort promises "pure opulence and the allure of the elite". Stephen James Granville, the man behind the Puravarna vision, has a passion for the richness of grand civilizations and indulgence of the senses. Nearby, The Mangosteen Suites Estate is proving to be a winning concept, benefiting from its proximity to the attached 5 star hotel and the sleek modern design skills of celebrated architect Gary Fell.
Meanwhile, another Rawai headland property - a 150 rai beachfront plot - recently sold for B1.325 billion for a new resort development. Richard Lusted of Siam Real Estate believes firmly that Phuket has a bright future on the global property stage and the south coast beaches "like everywhere else, are growing like crazy".
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