Market Watch - Page 27:

 

As we continue our voyage into 'uncharted territory' the favored catchphrase of every politician and multinational CEO with regard to current market conditions: nothing is at all clear. My days are marked by more jitters and swings of opinion than a visit to Surin park on a Sunday with my daughter who oves going up and down on the teeter-totter.

Of late the question of land values and, more recently, overall property prices have spurred a healthy and no doubt long-term discussion on whether property in Phuket is just too darn expensive, and if it was lower would there be a faster market recovery? Aside from the obvious answers being yes, no or maybe it's a complex and long reaching question with no easy answer.

The island's property market is not a cohesive single entity that can be easily discarded into a dumpster, but, as in recycling, you need to sort through the various elements and break it down into manageable chunks of information. A vast majority of the mid – 5 million baht plus – to upper tier – 65 million baht plus – developed real estate is strongly dominated by foreign buyers. Research indicates this to be in the region of 60-70% owned by the foreign segment with the remainder being domestic purchasers.

Taking this a step further you have end users, those who buy a house and use it as their primary residence, and then others purchasing a holiday home, second residence or lifestyle investment unit which is often hotel managed or rented through estate agents. The majority of these properties were purchased on a cash basis and there is limited exposure to local banks within this segment.

Despite its phenomenal growth over the past five to six years, Phuket remains a developing market – albeit one which has certainly moved further into its cycle over the years. The lack of available mortgages and debt, recent emergence of a scalable resale market and a predominance of small private developers over institutional and listed firms would indicate it still getting it's legs in a broader global or regional marketplace.

Taking a step back to 2002/2003 when the market started an upward cycle of double digit year on year, capital appreciation, extremely favorable supply/demand ratios and prices have continued upward at a
significant pace each and every year. Take a reality check and you can see that the current slowdown did not begin with the start of sub prime. It commenced 24 months prior to that with the start of the political instability of the Thaksin government, a foreign business act scare and serious increases in supply of new
developments at every conceivable price point.

Tracking the market during the last two years, certain segments have continued to perform well – the upper tier luxury villa