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A new lease on island life – Phuket Property

Legacy Phuket Gazette

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A new lease on island life – Phuket Property | The Thaiger
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PHUKET: When is leasehold more valuable than freehold?:

“In over 35 years in the property industry in the United Kingdom, Hong Kong, Thailand, and having worked in many Asian countries, I would have said until very recently, never.

“However, I have to acknowledge that with the arrival of some excellent leasehold properties, the Thai property industry has recognized that a well-appointed and managed leasehold property can out-price, out-perform, and be preferred by buyers to freehold condominiums. Leasehold can also be a better investment, if it offers better management and/or income returns,” stated David Simister, Chairman of property consultancy, CBRE Thailand.

“Just to confirm my terminology, a condominium is a strata title property within a juristic development where the owner, foreign or Thai has a perpetual freehold title. The communal property of the condominium is run through the Juristic management committee and subject in Thailand to the Thai Condominium Act.

“A leasehold property does not offer perpetual ownership; the longest initial term (registered in Thailand) is 30 years and a developer may offer a series of extensions. The ultimate ownership of the property and its control is in the hands of the lessor, an independent individual or corporation, who grants the lessee(s) a lease. Leasehold is considered a depreciating asset, because as time passes the value of the remaining term of years decreases.

“It is fair to say a condominium of equal quality with an equal certainty of a continuation of good quality management is a better and more valuable investment than any leasehold property; however, in Thailand, leasehold property has evolved and similarly located, freehold condominiums are not always more valuable than leasehold.”

The evolution of the quality leasehold has arisen due to the leaseholder’s decision making ability and the superior attitude to maintenance standards. The leaseholder has the ability as the sole freehold owner to make decisions. He can appoint and enter into a long-term contract with top quality managers including branded hotel groups, such as St Regis or Amari. A top level hotel operator, particularly where a property is a resort, can maximize income returns, compared to a typical juristic condominium.

Only the single condominium leaseholder can give a quality hotel operator sufficient confidence to enter into a long-term contract for the professional and high-quality operation of the property. Only with a long-term contractual commitment will hotel operators invest the necessary time and resources to create an investment vehicle capable of regularly securing the maximum achievable returns.

In 1990, CBRE Thailand marketed off-plan Laguna Phuket, a wonderful concept of an integrated resort in a private well-maintained and managed beachfront area along Bang Tao and Layan beaches. The residential properties were to be operated by several hotel groups: the Sheraton, Allamanda, and Banyan Tree. The management resources devoted to those properties would provide five-star hotel quality (Sheraton) and five-star plus (Banyan Tree).

The hotel-branded residences provided quality services and in the case of the Sheraton, double digit income returns to buyers. Twenty years ago, hoteliers were prepared to operate both freehold and leasehold projects.

Sadly today, most if not all major international hotel brands will not contemplate offering hotel management services to a multi-owner condominium. Largely, this is because of legal disputes in the USA. and the worry that a single disruptive or litigious owner can pull down the house to the detriment of his co-owners and the manager. Condominium management relies on a concept of majority votes and democracy. This is fair in principle but in practice can create disputes over services, budgets, and result in a lack of clear leadership and consistent management.

Most importantly, a juristic body where the governing committee can change annually cannot effectively enter into long-term service contracts.

By comparison, the single lessor who does not require any vote or approval can enter into a long-term contract with a hotel group and can more directly and effectively ensure continuity in the operation and management of the property.

In comparing leasehold versus freehold, CBRE Thailand never has an exactly like-for-like situation, but it is clear that the well-appointed quality luxury leasehold has a clear market demand.

In Phuket, leasehold is also out-performing freehold sales where the total package of property and services is more attractive than ownership of freehold title.

One of the most successful leasehold projects this year has been Amari Residences Phuket on a site overlooking Patong Bay. Amari Residence Phuket has been achieving prices in excess several West Coast condominiums with freehold title. Much more interestingly, this has been one of the first projects in Phuket to show a strong level of demand from Thai Bangkok investors.

Why specifically is Amari Residences Phuket better than many of the West Coast freehold condominiums?

The answer is simple: the quality, unbeatable views, the continuity of management, and sustainable regular income that comes only from good hotel management. Many other projects that promise high returns have failed to secure the right operators. Many small and medium Phuket developers have not been able to deliver in terms of capital to complete to the original specifications or to provide rental management programs.

The quality of management and the ability to make single-minded management decisions, is proving leasehold is now capable of out-performing freehold condominium. This does not mean that every condominium is now an inferior product to every leasehold property, but it does throw in to the highlight the need for condominiums to develop good and consistent management levels.

In Phuket where a variety of ownership structures have been employed, CBRE Thailand has found a broad commitment among owners to manage up to a quality standard, not down to a budget. Sadly, in Bangkok many condominiums are not able to manage up to luxury standards commensurate to the built quality of the condominium.

Ultimately, for long-term value preservation of any property asset, good management is essential. Condominium owners need to pay more attention and collectively be more constructively demanding of their building and Juristic managers to ensure that they enjoy the price appreciation that freehold property in a prime location should merit.

For the time being, there will be more instances where well-managed and professionally run leaseholds will outperform condominiums in terms of operational standards and ability to generate income.

Keep checking our online Phuket Property pages, join our Facebook fan page or follow us on Twitter @PhuketGazette for the latest local and national property updates.

— Phuket Gazette / CBRE

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Business

The ‘office’ is SO last year. Say hello to more remote working.

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The ‘office’ is SO last year. Say hello to more remote working. | The Thaiger

Do you work from home? Or anywhere you have your laptop and wi-fi? You’re part of a growing trend in modern work practices as the fancy city office becomes an expensive relic of the ‘old normal’.

2020 became the year of people working from home. In same case, it was the year of being told to stay home so there wasn’t much option. During Thailand’s lockdowns in April and May, offices were closed and employers had to scramble to find alternatives to the “office”. With the rise of Zoom and other video conferencing software, ways of tracking time-on-keyboard and hundreds of other monitoring apps, employers suddenly discovered they could actually run their businesses without an office. There were certainly new dynamics and unforeseen challenges, but for the most part, it worked.

Companies had worked from central office locations for a hundred years. The remote/work-from-home option was a new test for everyone involved but many early wrinkles have been ironed out after an accelerated learning curve due to the Covid-19 situation.

In the early days, most companies weren’t ready to close up the office and send their workers home claiming that some basic operations such as accounting and invoicing were not yet able to be done online (Thailand has a love of hard-copies and paperwork).

Team meetings were also more clumsy online. There were even companies that told their staff to keep coming in to the office as there was no legal barrier preventing them from doing so. But many smaller and less digitally-savvy firms required workers to come in and risk contracting the virus.

In the US, the Bureau of Labour Statistics found only 29% of jobs in the US could be completed from home, while in Thailand (a far less digitised and service-based economy) the percentage was probably lower.

But larger Thai firms, such as Unilever and True Digital allowed nearly 100% of their white-collar employees to work from home early during the lockdown phase. Other companies adapted quickly and found that working remotely, or from home, allowed their businesses additional flexibility. Many workers also say they enjoyed the lack of office interruptions too.

While Unilever was unable to send its factory workforce home, it was able to shift all sales and executive personnel fully online to avoid possible Covid exposure finding hitherto unknown improvements in the firm’s e-commerce presence.

Thai startups such as Eko (“your complete employee experience platform”) was able to capitalise on the rise of work-from-home with its “work anywhere” employee application. Eko experienced 200% year-on-year sales growth in the first half of 2020 as companies looked for solutions to connect employees from home.

Teleconferencing juggernaut Zoom was trading shares at US$88 at the start of 2020, to rise to $568 by mid-October, only to trail off to $337 by the end of the year – the fickle nature of a fast-rising tech start-up.

Employees, generally, prefer the shift to working from home and the flexible hours. It doesn’t suit all businesses or all employees, but it suits many. A study by by recruitment specialists Robert Walters Thailand found 75% of workers want opportunities to work-from-home and only 25% want a return to full-time work at the office.

Last month the police and the Bangkok Metropolitan Organisation police urged businesses to allow employees to work from home at least once a week to cut down on traffic-induced pollution.

The Covid-19 pandemic also forced countries to rethink their supply chains and reliance on foreign goods. China, for example, responded to the outbreak by shutting down factories, some of which other countries relied on for medical equipment needed to fight the virus, and vital components needed for manufacturing of goods in China and other countries.

Whilst there was an initial push-back on China, the international supply chain has become so entwined with Chinese businesses and manufacturers, and China with other countries, that it would take decades to unwind.

One of the biggest winners this year has been the rise of the delivery services. Grab Bike, Food Panda, We Serve and Line Bike are the best known but there are start ups making inroads into the growing delivery space as well as many smaller and larger businesses that have their own deliveries.

These businesses have been able to thrive on the ‘new normal’ stay-at-home culture. Eat at home, work at home, shop from home, watch movies at home – the trend is growing as people realise that they can get almost everything delivered, timely, efficiently and at little additional cost, usually free.

The big test will be once the Covid situation settles down, whatever that means and whenever it happens, and companies look back at the successes and failures of their employees working from home. But there’s no doubt the pandemic and the imposed restrictions ave accelerated the need to develop new ways of allowing employees to work safely, remotely or from home.

The successful transition of some office work to work-at-home will also put continued pressure on the commercial real estate market. Many employers are looking at their monthly office rental outgoings and starting to measure the return on their investment.

The rise of the work-at-home phenomenon and the digital nomad will be the main trends for office work in 2021.

This article was written laying on a couch, at home, at 6.15am in the morning, because we can.

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Bangkok

Bangkok’s commercial property market struggles through 2020

The Thaiger

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Bangkok’s commercial property market struggles through 2020 | The Thaiger

This year Thailand’s developers had to work around the effects of government lockdowns and restrictions because of the Covid-19 pandemic. Indeed significant changes have occurred to the commercial property market in Thailand. CBRE Research reports that the Bangkok office market suffered a significant change in the net up-take, whilst the retail market consumer confidence index fell and the hotel market struggled to maintain the cash flow.

It wasn’t a good year.

COMMERCIAL

During the initial lockdown, during April and May, adoption of work-from-home not only changed how we implement social distancing during the Covid-19 pandemic period, but showed businesses and employees that the workers could work remotely, and effectively. Many organisations have now revisited their workplace strategy, and some have started changing how and where each business unit operates.

Coupled with financial pressure on businesses, the situation resulted in a contraction in space sizes by many tenants, especially in Grade B Non-CBD locations where tenants are more sensitive to financial illiquidity. In addition, some tenants were unable to move into their office space as the office fit-out could not commence due to the lockdown. CBRE Research found that in the first nine months of 2020, the net take-up increased by 21,000 square metres compared to 128,000 square metres in the same period last year. However, CBRE Research also reported that office pre-leases were seen in the growing businesses such as e-commerce and technology platforms where the demand for workspace has doubled.

According to CBRE Research, the total office supply in Bangkok as of Q3 2020 was 9.17 million square metres, increasing by 2.1% year on year, with key completions being Spring Tower and The PARQ in Q1 2020. While this year has new office supply of 345,900 square metres, the negative take-up has resulted in the increase in vacancy rate from 6.9% at the end of last year to 8.9% as of Q3 2020.

While the overall occupancy in the Bangkok office market has slightly dropped to 91.1%, the best performer this year is in the Grade A Non-CBD segment where the total supply is only 674,000 square metres, representing 7.4% of the total supply in the market. The expansion of mass transit systems and urban development have increased the attractiveness of high-quality buildings in Non-CBD locations where rents are much lower compared to CBD locations.

RETAIL

Thailand’s retail industry has slumped as shopper have experienced a drop in spending power. The consumer confidence index also fell to its lowest point in 20 years in April 2020 at 47.2. Even though the confidence has improved in the following months, it is still a long way from its pre-Covid-19 levels. Due to business disruptions and increasing financial burden, the household debt as of Q2 2020 was at 83.8% of the total GDP, increasing from 78.9% last year.

CBRE Research reports that the Bangkok retail supply totalled 7.8 million square metres as of Q3 2020, increasing by 2.4% year on year from the opening of 12 new retail developments with combined retail space of 100,000 square metres with Siam Premium Outlet near Suvarnabhumi Airport being the biggest development this year.

While the occupancy rate across the market remained high at 96%, CBRE Research has started seeing a drop in retail developments in downtown areas of Bangkok which are more dependent on demand from tourists rather than locals like those in the midtown and suburban locations.

How fast the retail industry can recover from Covid-19 will largely depend on how effective the stimuli from the government such as “Kon-La-Khrueng” (Let’s Go Halves) and “Rao-Tiew-Duay-Gun” (We Travel Together) campaigns are as well as when international travel restrictions will be lifted. The amount of retail space in the market, especially in Bangkok, cannot be sustained only by domestic demand in the long run.

HOTELS

Tourism, one of the key sectors that drives the Thai economy, has suffered greatly this year as there were no inbound international tourists from Q2 onwards. The total tourist arrivals for the first nine months in 2020 stood at only 6.7 million compared to almost 30 million in the same period last year. Of those 6.7 million, the vast majority visited during Q1 before the border closures.

Bangkok hotels have seen the average occupancy drop to as low as 6.7% in April after the country went into lockdown but managed to recover slightly to 13.7% in Q3, solely relying on ‘staycation’ travel. Despite the lifting of the lockdown measures in June and hotels being allowed to resume operations, there was no significant sign of improvement in the market as international travel restrictions have been still in effect.

Some hotels have decided to open partially with heavily discounted pricing while some operate only their F&B outlets to generate some revenue to keep cash flow going. Some hotel owners are facing a situation that they have never planned for, a scenario where there have been no tourists for more than 9 months. This has put them under pressure and some have decided to put their properties on the market.

As of Q3 2020, the total hotel supply in Bangkok was at almost 50,000 keys, increasing from the previous year by only 2.8% as there were limited hotel openings this year. Based on what has been announced, CBRE Research has estimated that there will be 9,200 more keys that will be added into the Bangkok hotel market by 2023 which will further intensify competition.

SOURCE: CBRE

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Business

FazWaz accelerates growth in SE Asia property market with latest funding round

The Thaiger

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FazWaz accelerates growth in SE Asia property market with latest funding round | The Thaiger

FazWaz, a leading real estate transaction marketplace headquartered in Bangkok, has raised a new round of funding to accelerate growth into 2021. Serial investor and Online Marketplaces Chairman Simon Baker via CAV Investment Group says he’s been closely following FazWaz for the last 3 years since they first attended our Property Portal Watch Conferences in 2017.

“I believe that their mission to use technology to streamline the end-to-end real estate transaction process is the future for real estate sales. Brennan Campbell and his team are very well positioned to be a global leader in real estate e-transactions.”

The latest round of funding will be used to invest further into the marketing, data and technology to ultimately drive FazWaz brand awareness and grow its market share. FazWaz had gone against the traditional startup route and remained 100% bootstrapped for its first 4 years of business while showing 100% growth year on year.

Also participating in the funding round for FazWaz were 500Tuk Tuks, Aries Capital (Indonesian family fund), and Alpha Founders Capital.

Having been launched just under 5 years ago by expat entrepreneurs Paul Trayman, Brennan Campbell and Michael Kenner, the brand has expanded across south east Asia with the latest country launch being Cambodia in November. The portal is looking to digitise property transactions in the country and can count some 500,000 visitors per month to its main Thai site having overtaken some big names to rank in the top 3 property portal sites in the country.

Brennan Campbell, Founder & CEO of FazWaz, says that we now live in an on-demand, digital-first society where users want efficient access to products and services at the click of a button.

“The real estate industry is no different and users are demanding a better online search and offline service experience. As a mission-driven business, the funding and expertise brought on in this round of investment moves us closer to our goal of empowering consumers to make more efficient and informed real estate decisions.”

FazWaz is one of an increasing number of property marketplaces with an end-to-end model that seeks to bring transactions online with users able to make an offer directly on the platform.

Johannes von Rohr, General Partner at Alpha Founders Capital says that Thailand’s proptech (property technology) scene is seeing an exciting amount of activity with two well-known major M&A deals in 2020, one being for Kaidee.com and another being Hipflat.com.

“At the same time, a large amount of investment pours into startups tackling the fragmented real estate market. FazWaz re-envision the real estate sales process with technology. We are excited to back FazWaz as they now enter into the next significant phase of growth.”

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