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Market Watch - Page 28:

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Koh Samui’s Emerging Luxury Market Part 2

 

 

 

In my last column I looked at the emerging luxury property segment in Thailand’s other island resort destination, Koh Samui. As a continuation of that, I will review ongoing demand, issues and forecast trends on the island. Having spoken to a range of developers, agents, investors and purchasers, what follows
typically represents current market sentiment.

We are seeing a weak start to the year and can expect lower levels of demand to persist throughout 2009, and quite possibly well into 2010. While recent Thai political problems have certainly impacted the property market, this is seen as a short-term issue. Far more pressing for the Samui market is the difficult sales
climate, which is evident at present. This is mainly due to a decrease in confidence and liquidity among potential purchasers as a result of tough global financial conditions.

We are seeing a move to moderation, rather than heady optimism, among buyers. There is a gap between the prices offered by developers and owners and what prospective purchasers are willing to offer. This has led to developers being open to negotiation and to opportunistic buyers who are hoping to benefit from
short-term market softening.

It is likely that in the long term, prices will recover, but in the current climate, the limited number of transactions that are being made will happen at a discount. An additional challenge to developers is the
growth of the resale market, as owners affected by the financial downturn are forced to monetize assets. This will increase competition within the luxury market, as certain resales are being offered at significant discounts. In addition, in the current climate there is a degree of comfort associated with buying finished products, which may also impact off-plan sales in an already tight marketplace.

However, the Thai government is offering some support to the local property market, which is timely. Opportunities exist for local investors to gain a foothold in Samui’s tourist industry, as they will be offered Thai Board of Investment (BOI) incentives on an automatic basis if they win bids to buy back assets in Thailand from troubled foreign companies affected by the financial crisis. Furthermore, indications are that there may be some signs of recovery towards the end of 2009, though as of late these forecasts are being
pushed into next year.

Samui’s tourism market has traditionally been an important source of potential villa purchasers, and as conditions improve, tourism is expected to strengthen. This, combined with the limited current and
upcoming supply of prime properties, should provide a solid basis for upward momentum in the Samui property market.

When compared with Phuket’s real estate market, Samui’s is still in its infancy. But it is rapidly catching up in terms of product variety and robust pricing levels. The Samui Estates villa project (adjacent to the Four Seasons), was the first large-scale project in Samui priced in excess of THB100m. However, the W Retreatand
Conrad¬branded luxury villa projects are also testing pricing levels in the market, as are a variety of smaller boutique luxury villa developments. With the newness of many of the high-end developments, it
remains to be seen how the market tolerates current asking prices.

However, it needs to be acknowledged that current and upcoming supply in the top end of the Samui property market is very limited, and few prime parcels remain available for future development. As such, it is likely that in the medium term, upper-tier property will remain a small but exclusive segment of the wider Samui property market, adding support to the price premium.

Another change is in the location of new upper-tier projects. The bulk of development in Samui has always clustered on the northern and eastern coasts, which have become increasingly

 

 

built up. As such, with a growing array of high-end developments clustering along the southwest region from Taling Ngam to Thong Krut and the last few remaining coastal parcels in the area being bid up, it appears that Samui is in the process of creating a new luxury enclave.

Looking ahead at new trends, one is a likely change in demographics: due to increased accessibility to key regional and international markets, it is likely that Samui will see a change in the make up of its visitor groups. New direct air routes announced recently will open up access to Samui for high net worth individuals, particularly from Eastern Europe, Russia and China. With the fairly recent large¬scale devaluation of both the pound and the Australian dollar, these markets have seen sharp declines as key markets.

There is a move to smaller boutique developments. The shortage of developable land (or contiguous land parcels) in prime areas has led to an increase in the number of small-scale high-end developments, with 10 or fewer units. An example of such a development is Naissance Villas. While new areas opening up in the less developed south and west of Samui have afforded investors the opportunity to purchase parcels of land suitable for larger projects, the overall shortage of land on the island will not make this trend sustainable.

Always a key issue is the available infrastructure and whether it can keep pace to support the growth of the tourism market. This includes the new terminal at Samui Airport, which became operational in 2007, more than quadrupling handling capacity to 16,000 passengers. This is complemented by planned additional air routes into Samui, which will provide access for new tourism segments. Other works underway include the expansion and improvement of essential access roads, including projects to widen key roadways.

Interesting to note is a shift in the political landscape led by the recent decision to declare Samui a “town” in its own right, as opposed to a sub-district of Surat Thani. This has resulted in some administrative changes that may have positive effects on the island and its future development. The island will now be able to deal directly with the central government in Bangkok, rather than petitioning Surat Thani to do so on its behalf, and ought to have a greater say in its financial affairs and infrastructure planning going forward.

Phuket has already developed a critical mass of good quality marina infrastructure. Samui has very little infrastructure in place for the boating market, though this may be set to change. A public meeting was held in October 2008 to discuss the possibility of building a small public marina on the island. While different locations have been discussed, it appears that the current frontrunner is the Big Buddha area. In addition, it has been suggested that the upcoming Park Hyatt will have yacht berths on a neighboring island.

Lastly, going green on any island is a charged issue. Samui’s development has been rapid, and the current pace is not sustainable. As such it has been recognized that certain aspects of infrastructure planning have lagged behind tourism growth, causing stress on natural resources and local culture.

Currently there is a “green island” project underway. The aim of the project (a collaboration between public and private sector interests as well as tourists), is to protect and restore the local environment and local culture as well as to create a tourism business that is sustainable in the long term.

Samui’s property market remains a developing story, and most insiders’ forecasts for this year see the market remaining challenging going into 2010. How this storyline plays out and whether we see a parallel effect in Phuket remain something to keep our eyes on.

 

 

 

 

   

Bill Bamett is Managing Director of C9 Hotelworks a Phuket hotel and residential consulting firm With more 20 years experience in the region, he has played an active role in some of the island biggest develovments.

       
       
Articles: 2009
 

Phuket Luxury Villa Market Update Feb 2009

 

The Next Big Thing In Ocean Front Real Estate

 

Koh Samui's Luxury Market Emerges

 

Phuket For Sale

 

Predicting The Year Ahead - 2009

 

Is Phuket Ready For Fractional Ownership?

 

Is Phuket Property Too Expensive

 

The Winds Of Change

 

Phuket Luxury Villa Market Update Part 1

 

 

       
 

Archived Articles: 2007 - 2008

 

Krabi - On The Edge Of A Boom

 

Khao Lak, Back To The Future

 

Rental Income - Investment Rent And Raves

 

US Financial Crisis - Living The Sub-Prime Life

 

Hotel Branded Realestate, Battle Of The Brands

 

Aesthetics - Out With The New, In With The Old

 

Rental Property - Plus & Minus, Buying A Hotel Unit

 

Local Communities - Cables Gone Wild

 

Agent Commission, The Low Down About Paying Up

 

Aesthetics - Bold Designs Keep Boredom At Bay

 

Phuket - The Next Big Property Trend 2007

 

US Financial Crisis - Clouds The Property Horizon

 

Pre-plan your purchase, and prevent future pain

 

Vietnam, Too Fast Too Soon

 

Timeshare, High End Fractional Ownership Matures

 

How we should protect the property cash cow

 

Re-Inventing Patong

 

Budget Hotel Brands Shake Up The Scene

 

Property Developers - Number Crunching Pays Off

 

Bali, (property) Supply Surges Ahead

 

Aesthetics - Designing For Success

 

Phuket, Battle to preserve the beaches

 

Low Season - Cyclical Cynics

   
 

 

   
 
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