Phuket's tourism and property scene has taken off again, with many foreigners among the developers

Phuket's tourism and property scene has taken off again, with many foreigners among the developers
The Nation: 30 April 2007

By: Ki Nan Tsui




Phuket's real-estate market is sizzling once again, despite the ravages of the tsunami nearly two and a half years ago.

Both foreign and Thai developers and buyers have descended upon the 523-square-kilometre island, driving up land and property prices and spawning more and more premium and super-premium projects. After one or two visits, many tourists decide to stay on. Some even start their own property businesses.

These foreigners are the engines driving the property boom on the small tropical island. Real-estate consultant and Thai Appraisal Foundation chairman Sopon Pornchokechai says foreign property investment outpaced that by Thai buyers by Bt38 billion last year. Thais bought property worth about Bt32 billion, while foreigners spent Bt70 billion.

According to the general manager of Raimon Land's Phuket operation, Steve Brajak, only 35 per cent of foreign buyers in Phuket actually live in Thailand. Most of them are expatriates working in other Asian countries such as Hong Kong, Singapore and China, who return once a year for up to a month.

Yet the newcomers - both buyers and developers - often find themselves running headlong into legal barriers and face long and expensive efforts to circumvent them.

Major concerns at present include environmental measures in the planning process, which aim to protect what little beachfront land is left, and the controversial Foreign Business Act, which is currently before the National Legislative Assembly.

The "Pearl of the Andaman" environment is the main concern for civil servants and business operators alike. "It is our biggest asset," says Eam Thavornwongwongse, owner of Kata Group Resorts and chairman of the Phuket Chamber of Commerce.

Unbridled business expansion can irrevocably destroy the island, much like the tin-mining excavations of earlier years, he explains.

Quoting marketing guru Philip Kotler, who is reputed to have said about Phuket, "You're selling valuable product at a very cheap price," Eam advocates a "win-win solution" of raising room rates while tending to Phuket's natural environment.

The assistant director of the Tourism Authority of Thailand's (TAT) Southern Office, Runjuan Tongrut, points out that Phuket's tourism revenue has increased by Bt2 billion, from Bt75 billion in 2004 to Bt77 billion in 2006. This is a big jump from the year after the disaster, when revenue tumbled to just Bt28 billion. But the figures give cause for much satisfaction, considering that Phuket welcomed 4.7 million visitors in 2004 but only 4.5 million last year.

In line with overall TAT strategy, the island is bent on attracting more "quality tourists" who spend more and stay longer, Runjuan says, and such tourists continue to be drawn to Phuket primarily for its beaches and scenery.

Many shortsighted developers are desperately trying to dodge conservation laws. A common quest is how to get away with erecting a building on land that is 80 metres or more above sea level. Some have even suggested excavating high land, so that its elevation is reduced to, say, 79m above the Andaman.

But the restriction - a Natural Resources and Environment Ministry ordinance banning the construction of any infrastructure on hills higher than 80m above sea level - is actually a practical one, says the ministry's Ongart Chanacharnmongkol. Because of the sandy quality of the soil, structures risk being swept down in landslides.

Phuket and five neighbouring Andaman provinces are also protected by the Enhancement and Conservation of National Environmental Quality Act 1992, which monitors and controls the level of waste and pollution on the island, Ongart says. Any tampering with natural processes on the island is a criminal offence.

Therefore, ingenuity - most obviously in the form of design, branding and residential services - is required to create value for the 48,000 hectares on Phuket allocated for residential development.

Despite the tsunami, the coup d'etat and other politico-economic hiccups, most properties priced above one million US dollars (about Bt35 million) are selling quickly, says Indigo Real Estate's managing partner Tom Travers.

Notably, Hong Kong businessman Allan Zeman's 24 Andara villas, priced from $2.18 million to $3.28 million, were sold out within 12 months.

Another property in Indigo's portfolio that has not been short of attention is Cape Yamu on Phang Nga Bay. With exterior design by architect Jean Michel Gathy and interiors by Philippe Starck, who also designed abodes for the likes of singer Madonna, the 33 ocean-front villas command a hefty tag of $2.5 million each. Indigo has also hired GHM Hotels to manage the properties.

Travers believes that celebrity-designed "residential resorts", managed by international hotel firms, is a winning formula. Many resort and hotel chains have branched out into this area. Banyan Tree Group, for instance, has sold 22 pool villas at $2.25 million to $3.25 million each for a 30-year lease. It is a strategic move for founder and chairman Ho Kwon Ping, considering that Phuket is Banyan Tree's major source of income.

For foreigners with plenty of cash, another major hurdle is Thailand's land ownership restrictions. Hence, all eyes are on the new Foreign Business Act, which is now in its final stages before the National Legislative Assembly.

Currently, foreigners are forbidden to own land, but are allowed to own buildings and constructions on the land. They can lease the land for 30 years and extension of the lease is possible, but an extension is unable to be registered against the land and cannot, therefore, be enforced by a third party.

Some buyers see this as restrictive, considering that foreigners can buy land for building and agricultural purposes in Malaysia if it is approved by the state.

The restrictions have put off some local developers, who want nothing to do with the residential market and are prepared to accept the lesser margin of selling to Thais.

They point out that the restrictive law means the business is ripe for picking by middlemen with strong government connections.

One legal innovation is Thailand Long-stay Management (TLM), an alliance of companies in the hospitality and tourism industries, with the TAT holding a 30-per-cent stake.

A brainchild of the Thaksin Shinawatra administration, TLM sells "membership" packages to long-stay tourists, mainly retirees from Western Europe and Scandinavia. A VIP package, costing Bt50,000, entitles a customer to a one-year "property investor" visa, a mobile-phone SIM card from AIS (Advanced Info Service), a limousine pick-up roundtrip from and to Suvarnabhumi Airport and discounts of between 5 per cent and 50 per cent from affiliated shops and services.

TLM recently span off a new scheme called "Thailand Second Home", which involves a complicated legal set-up offering a kind of ownership for foreign buyers.

TLM chief exectuive Pol Colonel Ruamnakorn Tubtimthongchai says a new company will be set up to care for each investor. There are now 14 developers, 53 projects and 4,056 villas in the scheme.

Cynthia Pornavalai, a lawyer with Tilleke and Gibbons, says a buyer gets what is essentially life-time membership of the Thai Second Home legal entity for Bt500,000. TLM holds, on behalf of each member, ownership to their properties.

"What this involves is a series of contracts," Cynthia says.

The so-called members have "rights" to sublease the properties, resell their memberships or even pass down membership to children. With administration fees amounting to 4 per cent of property values, membership also offers Immigration and Tourism Police officials "at your disposal".

But cautious buyers and vendors alike have concerns more fundamental than the privileges suggest. One woman put a simple question to the legal counsellor: "What will happen if the company goes bankrupt?"

The difficulty in responding to such questions may be swept away with revelation of full details of the new Foreign Business Act. National Legislative Assembly member Phummisak Hongsyok, who helped draft the proposed law, said the Act "will set the record straight and restore clarity and confidence among buyers and developers, once and for all".