Property Watch: Breaking down stats

PHUKET: Island condominiums continue to be the horse you have to ride, which is evident when you see mid-rise buildings coming up as far as the eyes can see. For the market though, talk continues to turn toward a bubble, a crash or at least a short break for a little ‘me’ time.

So what’s up for Phuket property as we storm into rainy season 2015? I’ve just run through some impressive data by online real estate platform FazWaz.com, and the numbers are very telling in terms of trends. There has recently been a lot of talk in the trade about shifting demand from end-users to investors, but let’s crawl into this sheet by sheet.

It’s impossible to classify the island property sector in broad, absolute terms – there is too much diversity and, in reality, there are two specific markets. The first is domestic grade properties, which have traditionally been aimed at buyers who intend to live in the units. One highlight of the sector is that it tends to have inland locations that carry relatively high-density profiles.

The other is the resort-grade market, which has a legacy of overseas buyers and has been typically oriented more toward investment or part-time usage. These properties are, of course, in tourist areas or key demand generators such as the ocean, golf courses, marinas and other upscale facilities.

Clearly, the former versus the latter makes up the lion share of the transactions and available inventory of condominiums for sale in Phuket. For more astute readers, the classification of these two segments is somewhat arbitrary, but can best be defined by selling price per square meter. In an international context you often have a grading system of ‘Grade A, B, and C’. However, no such system really exists for leisure type units.

Pricing is the clearest indicator of the specific asset type. This is best demonstrated in the FazWaz numbers by looking at median condominium pricing in Phuket Town, which is approximately 74,000 baht per square meter. On the flip side, Patong is currently edging toward the 158,000-baht high-water marker.

However, it’s important to connect the dots between buying motivation and expected returns. For property, of course, this is mainly in either rental yield or else capital appreciation on re-selling. What’s perhaps the most confusing for prospective purchasers is determining what the upside is.

While Patong is expensive, the argument might be that growth in land prices will continue upward and positively influence pricing for investors. That said, the reality is that supply and demand have to be considered as strange bedfellows: to cash in on a sell means that there must be a willing buyer at the right price.

There does remain the question, though, of what will happen to the slew of smallish studio units that have flooded the market over the past few years and whether or not they can be filled by either
end-users or renters.

One topic that also has to enter the mix is re-sales, the secondary market, and how this plays out.
Frankly speaking, there is limited data on the sector in the public domain and what consumers read about broad-market metrics is based on off-plan sales. For buyers, the question of re-selling is quite relevant given that’s often the best yield for an investment. Buyers have spent years covering the bank financing for the unit, just staying at break even. Then, when it comes time to cash up and out, whoops, the market turns out to be a phantom one.

Currently, the secondary market has what could be termed a ‘massive overhang’ of units. There is not a single common denominator for why the owners are trading. They range from financial stress, to those wishing to invest in other asset classes or else fatigue from low-recurring rental income. And then, there are the dreamers who ask, why not list and see if someone will buy at a highly-inflated price?

There is traction in this sector, but the pricing is volatile and highly subjective to negotiated deals and heavy discounting.

What is evident, for now, is that Phuket’s condominium market is maturing and as in any age-related story, the wrinkles might be coming around the edges and be creating their own unique story lines as well.

Bill Barnett is Managing Director of C9 Hotelworks (c9hotelworks.com), a Phuket-based hotel and property consulting firm. His BLOG (thephuketinsider.com) is The Source for all Hotel and Real Estate News within Greater Phuket.