Phuket’s secondary property sector drifts into autopilot mode

PHUKET: A familiar term for anyone with children is, ‘Where do we go from here?’ Those inquisitive, blank, questioning looks that penetrate deep into the heart of the seemingly innocent question about what’s next? Lately, the topic seems to have shifted to adults in the island’s real-estate trade.

It’s been nearly a decade since the dining tables shifted from a market where demand far outpaced supply and the overhanging secondary sector continues to hover over the property market like a bad Sunday morning hangover. Sunday Bloody Sunday could well be teed up as the season’s theme song.
Real-estate brokers have had to pivot from business models that once relied on retail sales, into survival mode, taking on new streams of business from villa and condo rentals, management, and all manner of peripheral trade. I can count the rising number of drone operators now plying real estate on a multiplying factor of fingers and toes.

Thankfully, there has been an easing in the number of low-priced shoebox condominiums and a number of Bangkok developers who once saw nothing but island daylight are now seeing defaults on the completion and transfer of units, which is again thrusting some serious product into the re-sale mix. ‘Rent or die’ is an often-heard investors mantra.

Phuket luxury, while still strong on the edges, certainly has been affected by the ongoing Sirinath National Park encroachment issue which seems set to play out in the media until hell freezes over. Or perhaps even longer. How long is that roll of string?

Investor sentiment has again fallen foul to that brooding game changer – currency volatility. For prospective buyers, the angst is on, though for sellers the chance to claw back on favorable Thai currency appreciation is a motivator to trade. As for the rumble of the ruble, there is little doubt the Russian surge is for the moment taking a bit of ‘me time’.

Lest we not forget the furor of a few months ago over the national news on Phuket’s leasehold challenges and as the ensuing days have worn on, the slowly dissipating interest, given newer more topical subjects such as stabbings, celebrities and all manner of goofiness pertaining to the travelling Chinese.

Phuket’s collective property journey is not unlike that of any other maturing market and some would say, thankfully, there is not broad financing available to foreign property buyers at the moment, hence speculation has been contained. There are few indicators about the present government’s intention towards increasing lease terms or allowing foreign ownership, but one could assume it’s gone cold for the moment.

As for the recent splash of investment-type offerings with guaranteed returns, this too will pass. Given Phuket’s rising hotel numbers, the model is not sustainable and in many cases the products cannot compete with full service, dedicated hospitality offerings. Though expect pain for buyers once the guarantees roll off and for hotels trying to keep pace with rates.

In a strange way, Phuket’s real estate sector is on autopilot for the moment, while the driver might be cat napping, the sheer size of the engine is powering along into the night, seeking daylight at the earliest opportunity. The island does not have European stress mode, though it also is seeing an increasing secondary sector which is becoming a beast of burden.

Rent or own looks to be a key storyline for the next few years, and at the end of the day, opportunity always exists when the price is right. As for brokers looking to refine business models in an ebb-and-flow industry, diversity or specialization might be in order, though it’s a very tall one indeed.

— Bill Barnett