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PHUKET HOLIDAY HOME MARKET: Buyers concentrate on completed and well-managed properties to minimize risks

Following the softening sentiment in the Phuket holiday home market, buyers of resort condominiums and villas on the island have adopted a more cautious approach, concentrating on completed and well-managed properties, according to Jones Lang LaSalle, a professional services firm specializing in real estate.
Relying greatly on demand from international buyers, the Phuket holiday home market has seen a slowdown in sales since the global financial crisis escalated in the final quarter of 2008. It was not until the final quarter of 2009 when the market sentiment started picking up as economies in most parts of the world showed signs of recovery. However, the recent political unrests in Thailand have softened buyer confidence, resulting in a slower recovery process in the Phuket market.
In response to the softening buyer confidence, buyers have become exceptionally cautious. Whilst some potential buyers have postponed their purchases and adopted a wait-and-see attitude, others have concentrated on completed properties only.
Dexter Norville, Head of Estate Management of Jones Lang LaSalle in Phuket, said, “Buyers shop more cautiously in a down market. They want to see the projects completed before they commit financially. To minimize risks further, they also look at how and by whom the property is managed.”
A more cautious approach adopted by most buyers has made it more difficult to market projects whose construction has seen little progress. To attract potential buyers to off-plan or newly launched projects, different strategies have been implemented.
There is a trend of off-plan or newly launched projects offering low booking fees and trying to spread the remaining payments to accommodate the buyer’s cash flow. Whilst a low booking fee may attract some buyers, it could also make it easier for buyers to walk away from a project when they lose confidence in the developer or the potential of the project.
Some projects offer cost incentives by setting up low property management costs. Mr. Norville commented that this could be a big mistake that may result in unfavorable consequences once the property becomes operational.
“To ensure that the property, including the common area and facilities, will be maintained at a high standard, the property management costs must be set at a sensible level. Depending on the economy of scale in each project, the reasonable management costs for resort condominiums and villas in Phuket range between THB 55 - 80 per sqm per month for a standard size condominium. For luxury Villa resorts, it depends if the costs are calculated by actual size of the villa or size of the land plot but approximately THB 30,000 to THB 80,000 per villa per month are figures seen in some of the best villa estates on the Island,” he said.
“In these times, developers may have no other choice but do their best to secure buyer confidence in the potential of their projects. Apart from a sound track record, developers must be able to show their financial status and support to ensure the buyers that they have enough financial capability to complete the project. Sales and purchase agreements must be drafted and presented clearly. A reliable management company that will run the property after it is completed should be identified,” Mr. Norville added.
It is expected that the Phuket holiday home market may take up to 12 months to rebound. However, the recovery process may require a shorter time should the political situation stabilize. Before the market fully recovers, completed projects will continue to stand a good chance of regaining sales momentum in the next high season.
“As soon as there is a clear sign of political stability in Thailand, the tourism and property industries in Phuket should bounce back quickly,” commented Mr. Norville. “While the global economy has gradually improved, Phuket’s reputation as one of the world’s most preferred holiday destinations will continue to attract demand for resort condominiums and villas on the island,” he explained.