Nine Years. of Thai Property

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2 INDUSTRY INSIDERS Nine Years of Thai Property Today s property market is a very different place to what it was nine years ago when Tropical Living magazine began publishing. It has faced some very high times and also lows, and managed to bounce back from a number of challenges, including a major natural disaster and political coup. Despite the ups and downs, the Thai market has so far proved to be robust, as the country s unmistakable charms draw investors each year. To get an overview of the past nine years and more, we contacted five leading industry insiders to share with us their views of the property markets of Phuket, Koh Samui and Bangkok. 37

3 Phuket Anthony Lark was the general manager when Amanpuri opened some sixteen years ago. Under 30, his drive and genuine hospitality put Amanpuri and Phuket on the map. Since then Anthony has launched Trisara, the luxury pool villa resort, where he is currently group director and general manager. Bob Andrews, arrived in Phuket in 2000 and became involved with real estate agency Phuket Land which itself began in the early 1980 s. Bob s dedication to improving the standard of agents operating on the island led to the establishment of the Phuket Real Estate Agents Association. Describe the early days of development on Phuket. AL: Living in Phuket since 1988 has given me an interesting perspective. It seems that in the early to late 90 s, every sq m of oceanfront land was purchased and the demand grew for housing, particularly at the top end. It all seemed to be foolproof as the destination infrastructure kept improving (schools, hospitals, shopping, air connections etc.), the weather is great, and the demand was certainly there. BA: The real boom years for Phuket were from 2000 to That s where we started to see the biggest price rise, the land prices went through the roof. There were very few residential developments when I first arrived, funding was not available from the banks so the early developers would buy a piece of land to build some villas, and then sell one to build one, it was all off plan. Some of the well known projects around at that time were Lakeshore Villas, Layan Gardens, Breakers (now Aspacia), Villa Santi and Ayara Baan Thai Cherng Talay. How fast did Trisara sell back then, and what were the buyers like? AL: The first 12 Trisara residences were sold before we even completed the 39 room hotel, between 2001 and 2004, being a total three year sell and build period, roughly. With our totally private site and a perfect contour which allowed for amazing ocean views, buyers at Trisara were not the traditional buyers from Hong Kong and Singapore. We sold to buyers from the USA, UK, Sweden, Japan and Australia as well. 38

4 Who were Trisara s competitors at the time? AL: In 2001, Trisara was the ONLY small, luxurious five star hotel and villa development on the west coast, so we really didn t have competition at our price-point. How did development on the island progress? BA: Geographically, it started in Patong and first spread south to Karon and Kata, and then a little north. The big change was when Laguna launched, and people started to look at Surin and Bang Tao. Then developments started in Layan, then Trisara at Naithon and the Marriott at Mai Khao beach, and then there was another leap to north of the bridge. The east coast was a late starter, and land began changing hands for development around 2001 to 2002 as the prices were still very reasonable compared to the west coast. What legal stumbles did the market face? BA: Around 2002 a big legal issue hit the market regarding the methodology of ownership, which was done through setting up a nominee Thai company. After the coup, the government introduced the new Business Act which clamped down on nominee structures. Leasing however is legal, although there is still a grey area about renewing 30 year leases. But if you are leasing from an organisation that has foreign investors within it, then the renewals are safe. Name some of the factors that have created market growth? BA: The resale market in the early days was very slow as the build quality was poor from buildings constructed in the early 1990 s. When the prices started to rise dramatically the resale market took off. Two things happened, buyers started to lose confidence in buying off plan, because of late delivery, and there was enough property available that had been built of a higher standard. BA: The big boost on the east coast happened when the regulators relaxed the laws on duty of boats, and the marinas were built to take advantage of the all year round sailing. At the time a rai in Patong roughly cost THB 40 million, but on the east coast it was still only around THB 200,000 How did the financial crisis change the market? AL: In late 2008, the market changed with political unrest, the global financial crisis, and now again, more political unrest. The entire market has of course slowed down to a trickle of what it was. Frankly, I am pleased that the island is getting a rest from a continued property boom. The traffic, waste systems, water supply and many other things needed 39

5 time to grow with the surge of the past few years. Phuket runs the risk of going down the same road as so many other resorts worldwide, being a charming place that was allowed to be over-developed, thus scaring off the tourists that provide the bread and butter. BA: Phuket is unique, as its not a debt driven property market, most buyers paid cash for their properties. Also because buyers weren t able to raise funds re Thai assets, we didn t have a lot of the same issues as other countries, where a buyer would pay 20% down on four properties and hope to sell them on before having to pay the balance. However some buyers would leverage their assets at home and use the cash to buy a holiday home, and there were some that lost their jobs and had to settle mortgages on their UK residence so had to sell. Investors were coming looking for something really cheap in Phuket, but properties were still advertising at the same prices, but we did hear of the odd exceptions where buyers received a 25% discount. BA: There are an increasing number of developers that run into financial issues for sure. There are one or two that are very cash strapped, but it would have to be very bad for any developer to go bust in Phuket. Many projects have stalled and are late completing, but we have not seen anything yet were projects have crashed and people have lost all their money. Before that would happen, there are enough people in the world that would step in and pick up property here at bargain prices. Most buyers are independently wealthy and there are situations where the owners themselves have got together to complete the development. How have buyers changed? AL: The buyers of the last Trisara phase ( ) were different from the original 12 owners, as they saw the resort had already opened and there was less inherent risk that we may not finish the development. Most purchased very quickly, with a faster due-diligence period. BA: Traditionally Phuket buyers are expats from Singapore and Hong Kong, Australia some Europeans, not many Americans due to the distance. This has started to change in the last two years with the emergence of India and mainland China. We are 40

6 located between two of the biggest growing markets, so dependency on the expat European market will drop as the other Asian countries become interested. What have you learnt from the financial crisis, what will you do differently in the future? AL: Marketing starts with the product, and if the product is good, people will come. Staying small helps as it mitigates the risk of a financial crisis hitting half way through the development. If we do another Trisara, it would be a similar concept, as we have enjoyed tremendous success and now that all the building is over, the fun starts in refining services, focusing on sales and marketing and of course keeping the place looking like new! BA: We were ahead of the game before the financial crisis and if we became nervous about a development we wouldn t sell it. Hopefully other agents will be more cautious. I believe if agents wants to be viewed as contributing a worth while value to the property market, then they should bear some responsibility for the transaction. As there are fewer clients around and deals are more cautious, I would hope that the market would vet their projects more carefully than they used to. BA: There are plenty of opportunities on the horizon with new buyers from China and India and finance is yet to come here. The market will be flat for a while due to the current political situation, but when we come out the other end, Thailand will be in a good position. We may well see another 6 to 18 months where agents close and some developments will be taken over, but in five years time, the long term view is excellent. 41

7 Koh Samui John Birt is the managing director of Samui Villas and Homes, and award winning real estate agency established in John has been involved with property on the island for some 21 years, since he boarded one of the first Bangkok Airways flights from Bangkok to Koh Samui in May Describe the early days of development on Koh Samui. JB: It was the commencement of flights which convinced me and some friends to invest on the island, and in November 1989 we purchased the land which became Le Royal Meridien Hotel in Baan Taling Ngam. Apart from the 45 villas built by First Pacific Land at Baan Taling Ngam, which came to the market in 1992, there was hardly any residential development at the time. All investment was concentrated on hotels such as Poppies, Blue Lagoon, Amari, Central and Santiburi. What were the developers like back then? JB: First Pacific Land was an offshoot of First Pacific Company in Hong Kong and they were true professionals who used experienced international contractors (Christiani & Nielsen) to build for them. They also employed properly qualified project managers. Then when the boom started in 2001, with only one or two exceptions most developers had little or no experience in development in Thailand, employed local contractors with little or no supervision by professional project managers. 42

8 What have been some of the notable launches and events in the market? JB: We are all aware of the projects which ran into difficulties and it was only when Dhevatara Properties came to Koh Samui in 2007 that we saw for the first time in about 10 years a truly professional development company. Another successful project was the Villas at Napasai (Orient Express) and The Residences at The Four Seasons Resort. Now we have the villas at The Conrad and also at the W Resort. Clearly these projects are developed by well funded developers, where in most other cases the progress of the development is dictated to by the success of the sales, usually off plan. How did the global recession affect Koh Samui s property market? JB: As the recession hit Koh Samui, projects, contractors and estate agents have run into difficulties. I suspect that the cause in each case was probably underfunding, reliance on purchasers funds to pay for projects and when cash flow dried up so did the projects. Some of which did not even get off the ground. Estate agencies need sales to generate commissions and in the past two years the number of sales have been insufficient to sustain the number of agents which once thrived. What have you learnt from the financial crisis, what will you do differently in the future? JB: If we had we just relied on one income stream we would have been in trouble. I like to think that we were very careful when we saw the trouble coming and set aside funds for the tough times which surely came. A combination of cash flow management and product diversity is what kept us above water, and more importantly, we did not jump into the development free for all. I would add that sadly with the problems in Thailand recently and in the world generally we still have a tough year or two ahead of us both here and on Phuket. 43

9 Bangkok Phanom Kanjanathiemthao left Chesterton Thai in 1998, and with his partners successfully set up Chartered Property Consultants, before the eventual joint venture with Knight Frank Asia Pacific in Under Phanom s guidance and from an initial staff of only seven, Knight Frank has today grown into an employer of over 250 staff in Thailand with offices in both Bangkok and Phuket. Soammaphat Traisorat began his role at the TCC Group in 2002 after leaving a career at Merrill Lynch, Hong Kong. As CEO and MD, he played a key role in developing the little known property arm, TCC Capital Land, into a successful and well regarded industry player with numerous successful condominium launches. Describe the Bangkok property market in the early 2000 s. PK: The Bangkok residential market during years 2000 to 2003, mainly focused on low rise housing developments located in the suburb areas of Bangkok. Condominium development was not present in the market since the financial crisis in The first new condo launch was not until 2002, and had very successfully sales. PK: In 2003, about 8,300 units launched and 85% had been sold. The condo market then started a period of very rapid growth with 14,350 units launched in 2004, 8,200 units launched in 2005 and 27,500 in 2006, which was the highest number of units launched. This then declined to 20,700 units in 2007 and 16,900 units in Selling rate or take up rate of those condo units are in the range of 70 to 80% which was considered the best selling rate as most of the projects were selling off plan. PK: Price of Bangkok condominiums was continuing to increase from 2003, due to very strong demand, as well as the fact that land in Bangkok s inner city area became more limited. Land cost dramatically increased, as did construction costs, which were affected by the higher global oil price increment. There were many new developers entering the market during 2005 to 2007, but mainly in the medium to low end market. However, there have been no new developers enter to this market since end of ST: When the company TCC Capital Land was founded in 2003, the property market in Thailand simultaneously turned into a recovery period, about six years after the Tomyam Koong Crisis in Thanks to the resuscitating economic environment, high end condominiums were incrementally launched and better received by consumers. Both Thais and foreigners including real buyers and investors showed much interest in purchasing luxurious condominium units. In regards to the positive signs of economic improvements, we anticipated strong demands of the high end market and in December 2004, we launched our first super luxurious condominium project Athenee Residence on Wireless Road. The project hit the highest selling price at that time, above THB 100,000 per sq m. Proudly, we developed a property which was well received, 70% were successfully sold within the first two weeks after the opening. How fast were projects selling? PK: They were selling very well during 2003 to However, luxury projects did not sell as fast when compared to the medium 44

10 Source: Knight Frank Research to low end developments. This is due to the fact that demand was not that huge and total unit price is very high with both high price per sq m and large unit sizes. During the good times, selling periods of general condo developments may be within 6 to 12 months, but some projects sold out within just one month. But high end developments took two to three years depending on the location and the timing of the launch. What type of buyers had the most spending power? How have buyers tastes changed? ST: Lifestyles of people and their demands for accommodation have been changing. Location and transportation convenience are keys to today s customer lifestyle. Home buyers show high demand to live in urban areas to save their travelling time and to avoid increasing oil prices. We, therefore, selectively plan and launch new projects in high potential locations i.e. those along mass transit routes such as BTS, MRTA and airport rail link. In addition to the location factor, in the past there were demands for housing for big families of two-three generations but nowadays families become smaller and people tend to prefer being single. Thus, the condominium is one of the answers to this lifestyle shift. Customers are more interested in small sized units i.e. one-bedroom. They look for convenience, privacy and safety at a reasonable price, which developers should take into consideration before launching a project. What challenges have you faced at TCC Capital Land? ST: There were several challenges. In terms of cost, we needed to manage the construction and material cost which tended to continuously increase due to higher oil prices and inflation rates. In addition, it was getting more and more difficult to find good size plots of lands in prime locations and land prices were going up everyday. Hence, our big challenge was to PK: During 2000 to 2005, Thai people were the main target group of condominium buyers. A number of foreigners bought also, as the high end developers main target was foreigners who both work in Bangkok and travel around the region, and want to have a permanent living place in the city. However, under the condominium law, Thais have to purchase not less than 51% of total space in the condo building. But after the political violence in late 2008 and global crisis in 2009, the foreign buyer market has disappeared. Source: Knight Frank Research 45

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12 manage all the costs efficiently to prevent any impacts on the selling price to customers. Another challenge was regarding human resources. When the company was established, we started with just a small group of people. However, as the company grew so fast throughout seven years, we needed many high potential staff to drive forward the company with us. It seemed difficult to recruit experienced staff and to train them to achieve our goals. Last but not least, we were a new player at the time of entering into the market, and as a new developer, our challenge was to develop quality high end condominiums which could indeed answer customers requirements and to build up a brand in the mind of consumers. Brand recognition of a new company was not a simple practice, since customers expected high quality and they were very tasteful with their accommodation selection. The global financial crisis hit in 2008, how did this affect your business? ST: Certainly, the sub-prime crisis had an effect on developers, including our companies, every so often economic crisis directly impacts upon the real estate sector. High end housing segments have been affected most because foreign investors have delayed their buying decisions or even withdrew an investment from the market. In view of the prevailing economy slump, consumers and investors - Thai and foreigners tend to be more careful with their spending. This situation was of course not favourable for an active market. How would you describe the Bangkok condo market today? ST: As a result of the sub-prime crisis, consumer behaviour in purchasing properties has changed. In my opinion, big developers nowadays play a more significant role, this is due to the fact that consumers tend to be more careful and discreet with their money spending. We perceive that most homebuyers at the moment are actual residents, not speculators or investors. Thus, homebuyers have more confidence in buying properties with the big developers whose brand recognitions are well and firmly established in the market. The company brand is now a key factor for customers purchasing decision. Hence, existing big developers who have been in the market for a long time have better business opportunities and advantage. What have you learnt from this crisis? ST: This kind of unfavourable situation is not new to us, and like other businesses, the management s challenge is to manage the crisis carefully in order to survive, and perhaps even to strengthen and overtake our competitors if we are innovative enough to convert challenges into opportunities. Crisis has a negative impact on business performance, however, in my viewpoint, it brings us, on the other hand, good lessons. It taught us that we must be able to analyse the market quickly and to adjust ourselves and come up with effective business plans to tackle the crisis. One of our strategies is to focus continuously on Customer Relationship Management (CRM), to retain existing customers or even give more confidence to new clients. In managing the business, we had to just simply stick to our company s philosophy Believe in Building the Best which we interpret as building the best team to build the best properties for our customers by putting our heart into every detail. We take pride in saying that since 2006, our projects have been awarded with numerous local and international level awards. Recently, the company won Best Developer 2009 and Best Housing Bangkok 2008 and 2009, two consecutive years for the super luxurious housing project The Royal Residence on Kaset-Nawamin Road. Being constantly recognised in various award categories as a professional and reliable developer is a very good stimulant for us to keep moving on the right path and our endeavours are being paid off. 47