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Phuket leads the way in managed hotel residences

Bill Barnett

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Phuket leads the way in managed hotel residences | The Thaiger
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by Bill Barnett of c9hotelworks.comFeature article

“Hotel Residences – properties that sell individual units in the real estate market and operate as either hotels or else are branded by hospitality operators. Other often used terms are condotel, hotel branded residences and hospitality-led real estate.”

Phuket’s love affair with hotel managed properties started in the late 1980’s with the posh Amanpuri ultra villas. Over the past three decades a rising number of chain and independent developments were successful in selling million-dollar pool villas including Banyan Tree, Sri Panwa, Andara and others.

Asia, and more exactly Phuket led a broader push of shifting top-end accommodation out of the box and into spacious villas. Take a trip around the globe today and the volume of hotel residences and mixed-use in the pipeline of leading top-tier brands such as Four Seasons and Ritz-Carlton is profound.

Fast forward some thirty years later and taking a quick look at the incoming Phuket hotel pipeline of new inventory coming online that has now surpassed 15,000 units, and over 8,400 are hotel branded residences. The sheer number tops any other Asian resort market, but looking inside the numbers, the vast majority of keys are relatively small-sized units in condominium hotels. The tables have now turned from luxury to resort-grade entry level and midscale real estate.

To understand the market let’s start at how to define the asset class which C9 Hotelworks terms ‘Hotel Residences’. Essentially this covers properties that sell individual units in the real estate market and operate as either hotels or else are branded by hospitality operators. Other often used terms are condotel, hotel branded residences and hospitality-led real estate. Vacation ownership or timeshare is not included in this classification.

Turning back to Phuket and keying into key trends in the current marketplace, the highlights according to our extensive research is as follows:

Hotel franchising and soft brands

We have seen a number of global hotel brands such as Wyndham rack up numbers in their pipeline through a growing number of franchise-type agreements. ACCOR on the other had has taken a soft brand approach with their MGallery collection which somehow addresses brand standard issues and allows more diverse properties into a chain scenario.

Size and price matter

Post GFC, the reality of a shift away from the legacy luxury markets has continued. Regional Asian segments and a growing number of Thai buyers are not dominant. We often say there are only two moving parts in real estate, how much it costs to develop and how much you can sell it at.

The new demographic is geared to lower absolute selling prices which today often lays in the USD100,000-200,000 range. Most developers now focus on absorption or sales pace of cheaper units instead of trying to push higher yields so it’s a volume play.

While hotel operators have often promoted pricing premiums for brands, today the ultimate absolute selling point is mainly the magnet for faster sales. Freehold has been realigned as the preferred method of ownership for both foreigners and Thais, hence the shift into condominium-type structures which allow foreign ownership of properties.

Mainland Chinese developers

An increasing number of larger projects in the pipeline are now directly or indirectly being sponsored by Mainland Chinese property developers/investors. In many cases, these projects are focusing only on a single geographic source market and their sales and marketing is primarily geared to Chinese. Branding is often a key issue for these volume-oriented projects, which is latched onto the rise of hotel franchise agreements.

Based on our extensive experience in consulting for hotel residences across all of the Asia Pacific markets, there is cause for concern in certain practices and learning from historical demonstrated real estate and tourism cycles:

Investment buyers dominate market

One clear sign that a cycle has topped is when investment or speculative transactions represent the vast majority of property sales. One could call this the opportunistic train and we typically see sales and marketing tactics like double-digit or long-term guaranteed returns or yields aggressively promoted.

A key learning in this area is that investment type returns for hotel residences are a function in resort markets like Phuket of the tourism sector and not real estate driven. Supply and demand are an essential part of the equation as is the ongoing effectiveness of hospitality management.

Given the current challenging tourism conditions in Phuket and mounting concerns over the impact of a China slowdown and decline in tourism numbers, these are signs that the level and term of guaranteed returns are a growing risk to property buyers. While the trend of property developers of hotels is now passing operating and investment risk to unit purchasers in hotel residences offerings.

One final thought on this subject is the risk associated with the security of long-term guaranteed returns to buyers given these are not widely regulated. Typically, these returns are neither secured against bank guarantees or managed escrow accounts which may come under pressure when hotel trading levels drop. Buyer beware.

Mismatch of products – real estate versus hotels

A critical issue facing hotel residences lies in when developers shift the buying base from end users or long- term rental focused and look to compete in the hotel space. Reality bites as the products are rarely apple to apple in comparison.

For hotel residences that are premised on investment returns in the hotel market, the natural competitors are pure hotel properties. In many cases the real estate offerings with full kitchens, an overall lack of outlets and facilities and interior fit-out are being promised to obtain comparable average rates as dedicated hotels. Customer perception is often like serviced apartments, that products like condominium hotels while offering more space, are priced below traditional hotels.

The result is a disconnect for investment buyers in their expected long-term returns. Real estate developers are mostly focused on maximizing saleable space, whereas hotel-type developers in resort markets understand the need to sacrifice some space for aspect, green and inherently lower-density.

One other key factor in this space is the fragmented ownership structure for hotel residences and ability to manage the asset, upgrade and remain competitive in the hospitality sector. Hotels are asset heavy propositions long term and typically over a ten-year period as much as eight per cent of revenue goes into maintaining these assets.

Single owned hotels are able to renovate and upgrade due to a cohesive ownership approach. Once large number of co-owners enter the equation, often hotel residences fail to reinvest at a similar level as their hotel only competitors with the knock-on effect being lower rates and decreasing yields.

Where do we go from here?

There are many good examples of hotel residences having long-term value and returns. In many instances these are mixed-use projects like the Banyan Tree, where a core hotel is operating and a smaller inventory of units are hotel residences so essentially there is a hotel owner ensuring the operating strategy is sound and performance measured to the market.

The influx of Phuket’s hotel residences is now going into unfamiliar territory with many projects having 100% of the units being sold and a co-ownership regime of hotels now a new twist in the market. Whether developers or unit owners are ready for this shift remains a key question?

Finally, on the subject of hotel residences as the only alternative available to developers in a challenged real estate sector, C9’s view is that strong opportunities are appearing in niche segments such as developers building projects to hold product and manage long-term rentals, retirement estates and co-living. All of the aforementioned types are focused on long term sustainable cash flow. As Phuket urbanizes, these may be a preferred development alternative to the current surge in hotel residences which are now facing off in the same playing field as single-owned hotels.

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Bill Barnett has over 30 years of experience in the Asian hospitality and property markets. He is considered to be a leading authority on real estate trends across Asia, and has sat at almost every seat around the hospitality and real estate table. Bill promotes industry insight through regular conference speaking engagements and is continually gathering market intelligence. Over the past few years he has released four books on Asian property topics.

Phuket

4 billion baht medical hub planned for Phuket

Maya Taylor

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4 billion baht medical hub planned for Phuket | The Thaiger
Mai Khao beach in north Phuket. PHOTO: Booking.com

Phuket officials are setting aside around 4 billion baht to transform medical tourism in the southern province of Phuket, by developing a state-of-the-art treatment hub in the north of the island. The Bangkok Post reports that the Treasury department is planning to give the Public Health Ministry permission to use 141 rai of government land in the sub-district of Mai Khao, close to Phuket International Airport. It’s not the first time the proposal has come to light.

The concept is gathering support as Phuket battles to diversify its attraction beyond a tropical holiday island.

The aim is to develop Phuket as a world-class health and wellness destination, with facilities that will attract medical tourists from all over the world, as well as providing a high standard of treatment to the local population. It’s understood the facility will provide a full range of health services, including long-term care, and hospice and rehabilitation services.

The island already has a well-developed medical tourism market, but has been based around local hospitals and clinics linking up with foreign marketing companies in the past. “The International Medical and Public Health Service” has been conceived to create more long term financial security and diversification, and value-added tourism in Phuket, as the island has taken a heavy financial hit over the past 7 months.

4 billion baht medical hub planned for Phuket | News by The Thaiger

PHOTO: Phuket Andaman News

The plan was first suggested in 2017, by then governor, Noraphat Plodthong and confirmed by the director of Phuket’s Vachira Hospital, Dr. Chalermpong Sukontapol, in July. At that stage, the estimated budget was 3-4 billion baht. The director-general of the Treasury department, Yuthana Yimkarun, says the plot is being offered to the Health Ministry for free. The land is thought be worth around 1 billion baht.

Yuthana says the ministry will manage investment, with approximately 2 billion baht required for the first stage of the project. Construction of the facility is expected to be completed over 2 years.

Meanwhile, it’s understood that unused government land that is currently managed by various government agencies may be moved under the remit of central government, with a view to increasing its worth. According to the Bangkok Post report, just 4% of government land is directly managed by the Treasury. The other 96% is controlled by various government agencies. Yuthana says the plan is to increase the percentage of state-owned land under the Treasury’s management to 10% within 2 years.

SOURCE: Bangkok Post

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Coronavirus (Covid-19)

“Open the borders, safely”, Bill Heinecke, Minor International interview – VIDEO

The Thaiger

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“Open the borders, safely”, Bill Heinecke, Minor International interview – VIDEO | The Thaiger

Bill Heinecke speaks to Bill Barnett. The two heavy-hitters of Thailand’s hotel and hospitality sector, mull over the current Covid situation and the reopening of Thailand’s borders to some form of tourism. Bill Heinecke is the Chairman and Founder of Minor International.

Bill Barnett is the Managing Director of c9hotelworks.com

Now the Thai government has approved the special long-term tourist visa scheme (STV), hoteliers are remaining skeptical about reopening due to the lack of clarity in the recent announcement, which will reportedly take effect next month. The president of the Thai Hotels Association’s southern chapter says more hoteliers will consider reopening if the government gives further information about the plan in terms of prospective markets, arrival dates, origin countries, and flights.

Such details would allow hotels to prepare themselves ahead of time to offer services as alternative state quarantine premises as at least 60 hotels in Phuket are awaiting approval to operate such facilities.

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Bangkok

Now they’re coming… Special Tourist Visa flight set for Tuesday – Tourism and Sports Minister

Caitlin Ashworth

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Now they’re coming… Special Tourist Visa flight set for Tuesday – Tourism and Sports Minister | The Thaiger
PHOTO: Unsplash: Suhyeon Choi

After much confusion and a few apparent ‘misunderstandings’, Chinese tourists on the Special Tourist Visa will actually arrive on October 20 and 26. At least that’s what Tourism and Sports Minister Phiphat Ratchakitprakarn says, according to the Bangkok Post. The first group is said to arrive 4 days from now in Bangkok (if they actually applied for the visa this time).

Reports circulated for weeks about a flight of 120 to 150 tourists set to arrive in Phuket on October 8 from Guangzhou, China. An announcement was made shortly after the flight was due to arrive with Tourism Authority Governor Yuthasak Supasorn saying “administrative issues” had caused the delay.

It was later reported that no one from Guangzhou had actually applied for the visa and it was all just a misunderstanding after the Tourism Authority of Thailand reportedly passed off a list of those “interested” in the visa as actual applications.

This time, the Post is reporting the first group of 120 tourists from Guangzhou will arrive at Bangkok’s Suvarnabhumi Airport on Tuesday. Another group of 120 tourists, also from Guangzhou, will arrive on October 26, but the Post didn’t say where that flight will land.

It’s apparently the same group that was planned to arrive in Phuket on October 8, but the minister claims the trip was postponed due to the Vegetarian Festival which is planned to run until October 25. Both the Phuket governor and National Security Council secretary general had claimed the festival was the reason for the delayed flight and was intended to ease fears of Covid-19 for the festival-goers coming in from the rest of Thailand.

Even though the new long stay tourist visa is good for 90 days, and can be renewed twice, the tourists will only stay in the country for 30 days, with 14 of those days in quarantine. Phiphat says the Tourism Authority of Thailand will find activities to keep the tourists occupied while in quarantine.

The visitors will be the first international tourists after a 6 month ban to prevent the spread of Covid-19. Thai officials have been discussing plans for months about how to safely reopen borders to revive the country’s economy which is heavily driven by the tourism industry. Officals are now talking about cutting down the mandatory time for quarantine from 14 days to 7 days to help entice people to visit.

SOURCE: Bangkok Post

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