Thai exodus
Thailand’s political problems may be confined to Bangkok but the repercussions are being felt by island dwellers. Alex Frew McMillan reports from Phuket
‘‘Developers who are part way in are slowing down. A lot of developments that were on the drawing board are never going to get off the drawing board’’ Charlotte Filleul, general manager of resort property, Phuket, CB Richard Ellis (CBRE)
The state of emergency in Thailand’s capital finally ended at the end of April. But the violence left two people dead and 120 injured, and the underlying problems that have set the ‘yellow shirts’ against the ‘red shirts’ don’t seem to have been resolved. What does this mean for Thailand’s property market, so popular with overseas buyers, particularly from Hong Kong? That’s the question facing property developers, brokers and investors here in Phuket.
The island’s rampant development has come to ground with a bump as a result of the financial crisis. The country has also witnessed a revolving governmental merry-go-round since the removal of former prime minister Thaksin Shinawatra in a coup in September 2006.“The market is not slow in Phuket, it is dead. It is absolutely dead,” Larry Cunningham, the CEO of the real-estate brokerage Phuket One Real Estate, said after the latest disturbances.
Over Songkran, the Thai New Year, Prime Minister Abhisit Vejjajiva was forced to declare a state of emergency in Bangkok, where rioters burned buses and occupied government buildings. Estimates suggest the demonstrations in Bangkok have cost the tourism industry 100 billion baht (US$2.8 billion).
The airport closures late last year came at the start of high season here in Phuket, which runs from November through April. Though tourists are still coming, their numbers are drastically down, and risk-averse Japanese, Korean and Chinese visitors cancelled en masse.
It is hard to imagine the political problems will not take their toll on Phuket’s luxury property market. Already several projects have been scrapped, and numerous developments are on hold.
The construction site of Shangri La’s Phuket Resort & Spa stands idle, a watchman and a guard dog the only signs of life. The development, which would have had a residential component, is stalled indefinitely, having secured backing from the now-defunct Lehman Brothers.
The land for the Four Seasons Resort and luxury villas planned for Rawai in southern Phuket is for sale and the project in jeopardy because it too had financing from Lehman. The Amalfi project planned by Bangkok apartment developer Raimon Land hasn’t yet got off the ground.
Elsewhere, the Lersuang Group has stalled three large developments after it ran into financial trouble. Other projects are going slow, with delays of at least six months at the Jumeirah Private Island luxury-villa project just off Phuket, and a similar lag at The Yamu, a villa project designed by Philippe Starck. Both sit off Phuket’s east coast.
“Developers who are part way in are slowing down,” says Charlotte Filleul, the general manager of resort property for the Phuket office of CB Richard Ellis (CBRE). “A lot of developments that were on the drawing board are never going to get off the drawing board.”
Sales at CBRE are down 50 percent compared with a year ago, and were particularly slow in the first three months of this year. Whether it’s because of the political situation or the financial downturn, buyers “don’t have the same confidence”, Filleul says.
At the Royal Phuket Marina, an extensive development for luxury yachts, there have been no property sales since Chinese New Year in late January. “People are not in the mood to buy second homes,” says Gulu Lalvani, the chairman of the Royal Phuket Marina and the founder of the cordless-phone maker Binatone Electronics.
Lalvani retired in Phuket 10 years ago, after first falling in love with the island in 1991 and buying a villa at the Amanpuri Resort. But he got bored in retirement and started developing property, buying 190 hectares of marshy land where a shrimp farm stood. The marina now stands, with berths for 100 yachts, it. But a second phase of the project that would extend the marina dramatically is on hold.
Lalvani has invested US$120 million of his own money in the marina, and he can wait for a rebound – like every foreign buyer in Phuket, he has had to pay cash. Although some Thai banks claim they offer mortgages to overseas citizens, local expatriates say that is window dressing, and no such mortgages ever get approved.
Phuket’s boosters hope the fact that it is a cash market will be its saving grace. They say this discourages speculation and means that most villa owners are wealthy.
Tom Travers, the managing partner at Indigo Real Estate, and his partner Nick Anthony admit that the Phuket property market has “moderated”, but they believe luxury villas will still attract the well-heeled. “There are a surprising number of people who still have a lot of money and are looking for somewhere to put it,” says Travers.
Cunningham, who besides running Phuket One is also the local honorary Australian consul, isn’t so sure. He has sold 33 villas out of the 45 he constructed at The Chava, a resort development with apartments. But he says the ongoing crisis and in particular the airport blockade have dealt serious blows to Phuket’s image. He has not sold a unit in 12 months, something he attributes to the economic crisis and rising concern over Thailand’s future.
“Here we are with a superb product and we haven’t been able to sell anything in a year,” he says. “Unless something is done soon, people will start to look at alternatives.”
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