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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.



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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Phuket

Palang Pracharath MP chastises Karon Police for not offering protection during condo visit

The Thaiger

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Palang Pracharath MP chastises Karon Police for not offering protection during condo visit | The Thaiger

VIDEO & SCREENGRAB: M Today

The Palang Pracharath member of parliament from Bangkok, Sira Jenjaka, had an argument with Lt Col Pratuang Polmana, Deputy Superintendent of Karon Police during his inspection to the controversial Peak Condominium in the Karon area of Phuket.

MP Sira was surveying the construction site of the project and the sales office, which also serves as a coffee shop, where he saw Lt Col Pratuang inside.

He stopped there and asked why the Deputy Superintendent didn’t send any officer from Karon Police Station to provide security for him, a standard protocol when parliament members visit a specific area.

The MP had publicly stated he had received death threats for revealing ‘problems’ with the ‘paperwork’ for the Phuket condo project that he claims has been built on land without the proper documentation.

Lt Col Pratuang said that he already prepared a team of officers to provide security for the MP but they were waiting for a confirmation. Then the MP asked his team to record a video of the conversation and said that, while he was not threatening anyone, he believed the police must respect and offer protection for a government MP who comes to work in the area, which was then followed by an argument.

There was a “middleman” who eventually separated the Deputy Superintendent and pulled him aside to calm him down. The ‘police whisperer’ then came back to apologise to the MP before they went inside the coffee shop for further private talks.

Read the original article about the allegations against Peak Condominiums in Karon HERE.

Palang Pracharath MP chastises Karon Police for not offering protection during condo visit | News by The Thaiger

The Peak Condominiums in Karon, currently under investigation after allegations made by Government MP Sira Jenjaka, who claims death threats have been made against him over the matter.

 

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Patong

How to be charged 2,600 baht for having a flat battery in the Jungceylon car park

Tim Newton

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How to be charged 2,600 baht for having a flat battery in the Jungceylon car park | The Thaiger

A rant…

Started off with trying to exit the Jungceylon carpark in Patong, Phuket, late on a Sunday night. After watching a film in their tawdry cinemas, I was assured by ticket sales staff that I should present my ticket stub with the car park card for free exit.

Getting to the exit gate and I was told I had to go to an ‘elevator’ to get my ticket stamped. As there were already three other cars behind me (it was around 9.30pm at this stage), it caused quite a kerfuffle and tempers (mine included) were starting to fray.

The poor woman at the exit booth (whose key work skill must be ‘patience’), kept yelling ‘elevator, elevator’, doing little to inform us what we were actually meant to do. (I wanted to leave a car park, not go on an elevator?!?).

Anyway, minor ‘misunderstanding’ sorted out soon enough, and returned to my car to exit the car park (about 10 minutes later).

A Russian man had had his own adventures with the Jungceylon car park the night before. Firstly he was stuck there on the Saturday night with a flat battery in his white sedan. As it was very late, and wanting to get home, he left the car in the space and took a taxi.

As I was sorting out my own car park ‘misunderstanding’, other car park staff assisted him with his flat battery by jump starting his car. The assisting staff were given a gratuity, I don’t know how much.

But on reaching the exit gate he was told he had to pay 1,800 baht. (Presumably for around 24 hours of car parking).

With his fist full of receipts, around 3,300 baht worth, he was also told ‘elevator, elevator’. He got out of his car, there were another three cars backed up behind him at this stage, and went to find the ‘elevator’. Upon returning he was now told he had to pay 2,600 baht! How the amount had magically inflated to 2,600 baht remains a mystery but the cark park ‘gatekeeper’ was not to be messed with.

By this stage about eight young Thai gentlemen, with name tags, keys hanging from their belts and hand-held radios, had turned up to ‘assist’ in addressing my complaints and ensuring that the Russian man was not able to leave the car park before paying the 2,600 baht. The only common language among the Russians and the Thais in the situation was English and it was not going well.

Google Translate was getting a fine workout but wasn’t really helping.

During the extended ‘negotiations’ the cars behind were detoured around and allowed free exit.

Given the man’s travails in having a flat battery, having to come back to the steamy car park late on a Sunday night, the cars piling up behind him and the loss of face for just about everyone at this stage, the ‘smart’, good PR thing to do would have been to thank him for spending 3,300 baht at their expensive shopping centre, lifted the boom gate and waved him on his way.

But no, these young Thai car park staff wanted their pound of flesh and there was no way in the world that barrier was going to be lifted until the man had paid every baht he ‘owed’. Three police turned up to try and sort things out but all departed in exasperation, knowing the car park staff were being pig-headed but unable to intervene because they would have caused their fellow Thais a loss of face.

At this stage the Thai car park staff were already starting to utter things under their breath and spitting out ‘farang’ in their deliberations.

During the entire two hour drama many other cars had the same issue of not understanding that they needed to report to the bottom of one of the ‘elevators’ to have their receipts stamped. There didn’t appear to be any signage or understanding of the procedure (until, of course, you go through this rather drawn out lesson in Jungceylon car park procedure). There was a sign outside the elusive ‘elevator’ but given there are seven other exits from the car park you’re unlikely to see them.

Apart from Jungceylon losing the patronage of at least two, or more, customers over their overly-officious and unprofessional behaviour, the system will surely remain unfixed waiting for the next stupid ‘farang’ to stroll innocently into the underground farrago.

The only bright light in the dingy car park fiasco was the pleasant young gentlemen sitting at the ‘elevator’ with his stamps and gracious smile, wearing full eye make up and blissfully unaware of the surly car park Nazis. He profusely apologised but I am fairly sure he was none-the-wiser about my lengthy explanation of the situation.

Give the man a pay rise!

For Jungceylon, I would urge better signage, in a few languages (it IS a tourist town), to inform us about their rather opaque car park procedures.

I did ask for a statement to include in this story from some of the ‘people with hand radios’ or a comment from the Manager. But there was none forthcoming. Our forum remains wide open for a response from management.

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Patong

Phuket’s lifeguards say goodbye to a champion of local beach safety

The Thaiger

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Phuket’s lifeguards say goodbye to a champion of local beach safety | The Thaiger

PHOTOS: Phuket Lifeguard Service

A commemoration ceremony has been held for Prathaiyuth Chuayuan, a local Phuketian who helped drive Phuket’s first beach lifeguard services. He passed away on Friday morning after a heart attack.

He first experienced chest pains whilst delivering his daughter to school in Phuket Town on Friday morning, drove himself immediately to the Vachira Hospital nearby but succumbed to cardiac arrest around 9am.

He was 57 years old.

He worked with Australian lifesavers to help train local lifeguards and improve the skills of the Phuket’s beach enthusiasts, and finally sought international accreditation for the growing body of competent Phuket lifeguards.

The Phuket Lifeguards Service, founded and run by Prathaiyuth and his wife Witanya, saved innumerable lives each year whilst battling Provincial Hall and local government for increased funding in annual contract negotiations.

Daren Jenner, a FOT (Friend of The Thaiger) and local safety officer for the International Surf Lifesaving Association, sent a message to us expressing his deepest condolences to Prathaiyuth’s wife, family and friends.

“I had many good conversations with him over the years. He was a good-hearted man who did his best in difficult and changing circumstances. A very big loss for Phuket and the lifesaving community here. ISLA sends our deepest respect for his long commitment to ocean safety in SE Asia.”

Phuket's lifeguards say goodbye to a champion of local beach safety | News by The Thaiger Phuket's lifeguards say goodbye to a champion of local beach safety | News by The Thaiger Phuket's lifeguards say goodbye to a champion of local beach safety | News by The Thaiger

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