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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

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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Read more headlines, reports & breaking news in Phuket. Or catch up on your Thailand news.

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.

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Crime

Phuket police arrest meth dealer, discover drugs valued at 15 million baht

The Thaiger & The Nation

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Phuket police arrest meth dealer, discover drugs valued at 15 million baht | The Thaiger

PHOTO: Newshawk Phuket

Drugs valued at 15 million baht have been seized in a drug crackdown in Phuket. On October 22, Phuket police, along with Phuket Governor Pakkapong Tawipat, reported to the media about a drug crackdown that ended up with a total seizure valued around 15 million baht.

Earlier, the police received a report from an undercover agent that a woman named ‘Ying’ or ‘Suthicha Thirawut’ was a local drug dealer trading drugs in Phuket area, so police planned to purchase drugs from the woman. They contacted Ying through another woman named ‘Noina’, Ying’s close friend. Around 10pm on October 20, police bought 1 gram of crystal methamphetamine from Noina before arresting Ying and another man, Thanet Thongtan, at the Naka Condominium.

The two confessed that they receive the drug from a man who they weren’t able to name, in order to sell in Phuket. They were paid 40,000 – 50,000 baht per time and admitted to police that they have done this for the man three times already. This time, the drugs hadn’t been sold to customers as they were arrested before being able to make a sale.

Apart from 2.4 kilograms of crystal methamphetamine, valued around 4.8 million baht, the police also discovered 76,800 methamphetamine pills, worth around 11 million baht.

The three are now assisting Phuket police with their enquires related to the case.

SOURCE: Newshawk Phuket

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News

30 dolphins greet visitors to Similan Islands

Greeley Pulitzer

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30 dolphins greet visitors to Similan Islands | The Thaiger

Tourists were treated to the sight of a school of dolphins in the Similan Islands off the Phang Nga coast on Sunday.

Tour organisers said that around 30 dolphins swam close to the boat six or seven miles offshore, creating excitement for passengers. It was the first time dolphins had been seen in the vicinity since October 15.

The Similan Islands National Park director said they were bottlenose dolphins and were among several species now returning to the area following a five-year closure of the park for environmental rehabilitation. Food is again plentiful there for them, he said.

Tourists are forbidden to feed wildlife lest the free handouts alter the animals’ natural behaviour, and the park’s waters are also very sensitive to contamination from human disease and marine debris, according to the director.

SOURCE: nationthailand.com

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Patong

Phuket hotels slashing the price of rooms

The Thaiger

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Phuket hotels slashing the price of rooms | The Thaiger

by Sophie Deviller

Hotels on Thailand’s most popular holiday island are being forced to slash prices, with rooms left vacant and beaches sparse as Thailand’s tourism chiefs struggle with a plunge in Chinese visitors caused by the US trade war and a stronger baht. Phuket was the most visited destination in the country last year, after Bangkok, and a good gauge of the state of its crucial travel industry.

Tourism accounts for 18% of Thailand’s gross domestic product and Chinese holidaymakers make up more than a quarter of total arrivals. But while 2.2 million people from the country visited in 2018, according to official figures, the numbers for January-September were down almost 20% year on year.

Claude de Crissey, the French Honorary Consul in Phuket and owner of about 40 rooms in the Patong Beach area, says Chinese tourists are usually present even during the current low season.

“That was not the case this year,” he said, adding he had to lower his prices by as much as 50%.

The problem is not only in Phuket, with hotels also struggling to fill rooms in the seaside resort of Pattaya on the mainland and on Koh Samui.

Trade tensions with the US have already made some Chinese reluctant to take holidays owing to uncertainty back home, while the Thai baht has risen about 10% against the yuan this year.

A boating disaster off Phuket’s coast that killed 47 Chinese holidaymakers in July 2018 also scared some off.

“We are worried,” said an industry insider, declining to be named due to the sensitivity of the topic in a country where tourism provides tens of thousands of jobs. Adding to the headache is the fact that more than 3,000 new hotel rooms are being constructed on the island, raising the question of who will fill them.

Phuket hotels slashing the price of rooms | News by The Thaiger

“In terms of business, it’s not good,” said Kongsak Khoopongsakorn, vice-president of the association of hotels in Thailand and director of Vijitt Resort.

“Because … we have more hotels, more rooms to sell, we have more restaurants, more coffee shops.”

Still, tourism authority chairman Yuthasak Supasorn said he remained “optimistic.”

“We should reach our goal of 39.8 million foreign visitors.”

However, that is only up from 38.2 million in 2018, much less than the jump seen from the previous year’s total of 35.6 million.

Counting on India

Now hoteliers and tour package operators are targeting visitors from elsewhere, particularly India, which experts see as a huge untapped market.

A rapid expansion of the middle class in India, increased direct flights and visa-free travel have prompted Thailand to revise forecasts upwards.

It now expects two million Indian tourists this year, after an increase of nearly 25% on-year in the first seven months. But for now, the lower arrivals is evident on the streets of Phuket.

“I’ve never seen anything as bad as what it is at the moment,” said Paul Scott from Australia, who said he has been coming to Thailand for 15 years.

He mainly blamed the stronger baht for the drop-off but also the fact that Thailand wasn’t the untouched vacation paradise it once was. “Now it’s not so new … and it’s not cheap,” he said.

SOURCE: AFP

Phuket hotels slashing the price of rooms | News by The Thaiger

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