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Phuket property: Asia’s big two markets mature

February 20, 2012
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Talk about “dream island destinations” in Asia and without a doubt Phuket and Bali rule the numbers game in terms of popularity.

If talk turns to resort real estate both are heavyweight contenders in the title fight. Round after round, punches or blows only end with the ringing of a bell. Practically speaking, when it comes to the life cycle of property, Phuket arguably has moved through the business milestones faster than its counterpart.

In what is often referred to as the “Golden Age” starting at Y2K (or in much simpler terms the 2000’s) up to the sub prime dilemma, the market went from a developing one to a monster on steroids.

Trends in the past are often the key to understanding the future so we have our work cut out for us.

From the early days, supply and demand were incredibly favorable as buyers flocked to our shores faster than developers could launch projects. First came direct sales, moving into a more sophisticated model of brokerage agencies, which then sprouted wings and multiplied.

Next were investment buyers who supplanted the early end users. The calendar which many thought of as human years turned out to be compacted into a shorter term growth cycle closer to dog years (especially the bigger breeds who are likely to bite the bullet after nine or ten years).

Infrastructure for real estate also moved up and onwards – legal and tax advisors, designers, interior fit out specialists, landscapers, and a host of others arrived. Then glossy publications, mass movement road shows and international profiles took the message far and near.

Later, secondary sales (re-sales) went, with an incredible growth stint, from infancy to now dominate broad resort grade transactions. Short-and-long-term rentals, vacation lets, fractionals, condo and villa resorts – the hybrid products now took the industry to one that was coming of age, mature and mimicking a traditional western model of diversity and depth.

Bali on the other hand, perhaps due to the bombs in 2002 and 2005, came to the party later. While the island always had a large villa market – what was missing were the estates, master planned communities and multi-million dollar ultra villas trading hands.

Strangely enough when the global financial crisis was in full meltdown mode, Bali was just cranking up the volume signaling that a party was going to be held – a real estate rave up. Indonesia’s economic growth remains one of the success stories over the past few years and one key sector – hospitality-led residential or condo hotels – have become a defining characteristic of the market.

At that time, Phuket flattened like a pancake once foreign demand went into hibernation mode, but down south domestic buyers have flooded the shop of dreams over the past five years.

Bali has inched the industry forwards in the curve, just like Phuket had done, but that’s where things start to get interesting. Will a parting of the ways be coming soon?

Phuket has seen an explosion of mid-scale hotels for longer than I can recall and is now hitting a serious tipping point of potential oversupply. A strong wind has propelled domestic investors to lead the pack, with a thriving economy fueling market capital and debt markets.

While the island has its share of mixed-use hotel and residential projects, in macro terms it remains in single digits when compared to the entire total accommodation supply. For the most part, in developments where guaranteed returns are offered, there remains a core hotel component and a secondary property offering. Risk remains mitigated.

On the flip side of the coin, Bali has not only embraced mixed use projects but a substantial number of developers sell out the entire inventory of units, contracting them to a hotel management company, offering a limited period of guaranteed returns which later revert to a revenue or profit split with unit owners.

The buying pool is made up primarily of Indonesians from Jakarta, Surabaya and other key cities across the archipelago. Over the past year, as we have done an increasing amount of work there, I often ask the question – how deep is the market and how long can this last?

Returning from a week there speaking to agents and developers, most anticipate a general slowdown over the next six to 12 months. From our analysis, the long-term effects of this investment-driven product cycle could have a wide-ranging impact on the hospitality sector.

As Bali will eventually see a slowdown in tourist arrivals (the same as Phuket will), and guaranteed returns diminish, hotel demand will retract and unit owners will see fewer returns. This will inevitably trigger units being placed into a newly found secondary market, but domestic investors who have leveraged their condos with the bank could be forced to price these down below current existing values.

An emerging secondary market will no doubt see primary or new sales displaced and flatten the pancake. Potentially the wild card difference between Phuket and Bali is that the latter has a larger proportion of domestic investment buyers which could create a wide scale decline on values.

The darker side is that with thousands of these units operating as hotels, unlike single asset owners who have to take a long term pricing approach, individuals will force managers to offer room rates at any price thus hitting the broader hotel market. Everyone loses. Everyone.

While this is not a doomsday prediction, warning signs remain for Southeast Asia’s largest economy and certainly there are lessons to be learned for Phuket.

Bill Barnett is Managing Director of C9 Hotelworks and can be contacted through c9hotelworks.com.

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A tale of two islands in the sun

February 16, 2012

Both Bali and Phuket sit 8 degrees from the equator Bali to the south in the Indian Ocean and Phuket to the north in Andaman Sea, but what makes them different?

Bali the famed “Island of the Gods” is one over 17,000 islands in the Indonesian archipelago it measures 140 kms from east to west and 80 kms from north to south. It has a varied landscape, rugged coastlines and sandy beaches; lush rice terraces and volcanic hillsides all of which provides a picturesque backdrop to its colourful, deeply spiritual and unique culture making it a paradise on earth.

Indonesia has the world’s largest Muslim community, Bali is the exception with 95% of its inhabitants being Hindu which influences every aspect of the islanders daily life.

Phuket by contrast is Thailand’s largest island covering an area of 539 square miles with 39 offshore islets. 70% of the island is mountainous with the majority of its pristine sandy beaches being located on the western coast. While the majority of Thais are Buddhist again Phuket is the religious exception with 30% of the islanders being Muslim.

80% of tourist travelling to Indonesia only visit Bali so direct international flights are essential the Island has scheduled flights from Europe, the Middle East, Asia and Australia. Phuket is served by more destinations;it also has charter flights from Europe and is connected to the Thai mainland by two bridges.

For most nationalities when they fly into Phuket they enjoy a visa exemption for a stay up to 30 days. The same travellers when flying into Bali are required to may US$ 25 or its equivalent for a Visa on a Arrival for the same period of stay. When they depart Thailand their departure tax is include in their ticket; departing Bali they need to have kept IDR 150,000 cash to pay the departure tax as there are no ATM machines in the International Departure Terminal.

Thailand welcomes retirees from the age of 50 who can prove they don’t have a criminal record. They need either capital equivalent of THB 800,000 deposited in a Thai bank a minimum of two months prior to making their visa application or a monthly income from outside of Thailand equal to THB 65,000. The Royal Thai Embassy in their country of residence will issue a visa for 90 days which can be extended to one year and renewed annually providing they continue to meet the requirements for a retirement visa.

Indonesia grants visa to national of 24 countries who are 55 with overseas monthly pension income equal to US$ 1,500 plus health, life and third party insurance. In addition they specify the type of property where an overseas retiree can live; it must have a purchase price of not less than the equivalent of US$35,000 or rented for a minimum of US$ 300, Having renewed an Indonesian consecutively for five years the applicant can apply for permanent stay certificate (KITAP) which is valid for five years.

Retirees often want to buy homes in their tropical paradise. In Indonesia one option is for a local person or company to buy the property in their name and to simultaneously give the foreign buyer Power of Attorney over the property with total and exclusive right to use, sell, transfer or lease the land combined with a statement that the proceeds of any sale belong to the foreign purchaser and not the nominee.

A more secure way is to establish an Indonesian company and 100% foreign equity is now possible. The draw back is this ownership freehold isn’t possible but Building Rights Title which effectively has the same strength as freehold subject to the companying continuing to use the land. Indonesian land laws are designed to prevent speculation by absentee owners how leave the land idle. Providing the purchase buys the land, builds a property which is occupied this title is safe.

While in Thailand the Civil and Commercial Code gives foreigners have the same property rights as are available to Thai nationals, however it is under the Land Code Act B.E. 2497 (1954) prohibited for foreigners to own land in Thailand. So with the purchase of a house or villa the purchase of land and the building need to be two transactions requiring quality legal representation to protect the foreigner owners rights. In both countries the legal requirements to buy property are complicated and open to risk without have the right legal advise, renting may be a less complicated option with no capital risk.

All travellers but particularly retirees need to have access quality medical services and as mentioned earlier retirees are required by law to have health insurance to cover medical expenses. Possibly the best medical care in Bali can be found at Sanglah Hospital, Jl. Kesehatan Selatan 1, Sanglah, Denpasar, Phone: +62 361 227 911 to 15 / +62 361 232 603 (VIP rooms) / +62 361 247 250 to 5 (Super VIP rooms)

In Phuket there are many high quality hospitals on admission patients are required to complete consent and admission forms and produce a travel insurance or credit card to ensure the hospital fees can be covered. Rooms in hospitals in Thailand are similar to a 3-4 star hotel equipped with a TV with International channels, fridge and a telephone. Visiting tends to be flexible and friends and family are welcome stay and extra beds can be arranged.

Both Bali and Phuket offer a wide range restaurants offering an endless variety of cuisines ranging from seafood to European style pizzerias, burger bars to fine dining restaurant, with an extensive selection of wines.

Bali boasts four championship golf courses, and what makes these courses different are the beauty of its lakes, ocean, mountains and rice terraces. In 1997 Fortune Magazine selected Bali Golf and Country Club as one of Asia’s five best golf courses. The best time to play golf here is in the early afternoon. For the discerning golfer interested in nature consider Bali Handara Kosaido Country Club. The course is nestled 1,142 meters above sea level within the slopes of an extinct volcano crater, with walls of dense forest at the back, and a tranquil lake at the base of the valley.

 

South East Asia Property Awards – Highlights

February 15, 2012

Absolute Twin Sands Construction Update Feb 2012 (Gallery)

February 13, 2012

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Absolute Twin Sands Construction Update Feb 2012 (VIDEO)

February 13, 2012

Knight Frank predicts Phuket surge

February 7, 2012

The Phuket residential market is surging as wealthy Asians and a growing Asian travel market flock to the resort island, says real estate consulting firm Knight Frank Thailand.

Nattha Kahapana, director of Knight Frank Phuket, believes Phuket is gaining popularity with South Koreans, Chinese, Singaporeans and Indians.

“We will see several Indian arrivals this month, as Valentine’s Day will bring lots of weddings, with about 200 Indian couples expected to join in the ceremonies,” he said.

Knight Frank Thailand Research projects residential demand will come from wealthy Asians visiting Phuket looking for condominiums and villas.

The Airport Authority of Thailand reported Phuket airport welcomed 4.2 million passengers during the Year of the Rabbit. This was a 20% increase from 2010, which registered 3.5 million passengers.

Last month, 187 villa units were launched from three projects, bringing the total available to 1,972 units. There were only 13 villas in the luxury segment located on Millionaire’s Mile, also known as Kamala, while the rest were in the mid-range segment that is affordable to most Asians.

More luxury villa projects are expected in Phuket this year. Laguna will launch The Odyssey, a mixed-used retail, villa and condominium project, with another 134 villa units situated at Ao Por on the eastern coast.

Absolute Twin Sands Resort & Spa Construction Update Jan 12

February 1, 2012

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