‘Greater Phuket’ may have its limits

Serenity Terraces - Phuket

Serenity Terraces - Phuket

Developers pursuing visions of expanding Phuket’s property market into neighbouring Phangnga and Krabi have run into regulatory problems that impede large hotel developments in Phangnga, says Ramesh K. Hamal, CEO of Green Heritage Group, the developer and marketer of the Serenity Terraces project on the island.

The drumbeat to create a Greater Phuket encompassing the other two provinces has been strong for years. Land on the prized west coast with its wonderful beaches has become scarce and expensive. While beaches on the southern tip are just as attractive, some on the east coast - while offering equally wonderful vistas - are less pristine.

This has led to a natural drift north into areas of Phangnga close to Phuket. One of the successful developments there is the boutique Aleenta Resort & Spa, which opened early in 2006 and is just a half-hour from Phuket International Airport.

Word then spread that a group of investors planned to buy a huge plot in the area to develop a five-star hotel and villa estate. But Mr Hamal said these investors were now rethinking their plans because Phangnga’s regulations prohibit hotels from having more than 80 rooms, which would not enable the planned scale of development.

“Phangnga is a different administrative zone and they have different regulations, although earlier they did allow developers to build any number of hotel rooms.”

He argues that this restriction has no economic logic because some projects require more rooms to generate the desired return on investment and achieve the level of service needed to ensure success. “I think the authorities have to be more diligent and understand the logic of economies of scale,” said Mr Hamal.

It is in the face of such problems that the Serenity Development Group - an American company in a joint venture with partners in Hong Kong as well as a Russian - is currently looking for a plot on Phuket’s west coast.

While sentiment has been unsettled by intensifying global financial turmoil and Thailand’s political problems, Mr Hamal remains optimistic about Phuket’s medium- to long-term future.

“I do not see a direct impact on the Thailand or Phuket property markets because it seems that Thai banks’ exposure to troubled US investment banks is not that significant,” he said.

“However, we have to wait and see what ripple effect the crisis will have on the property market. The biggest worry is that, as a result of this financial meltdown, there will be fewer people with disposable cash to invest in lifestyle resort properties.”

Mr Hamal expects the repercussions of the credit crunch to cause sales to slow down over the next nine to 12 months. “But I don’t see this impact being that significant over the long term. I think Phuket remains globally competitive. It still has room for growth and prices are more likely to rise over the long run.”

In fact, declining property values and the worsening health of financial systems in US and Europe could benefit Asia - where Thailand and Phuket are prime magnets for investment - because Americans and Europeans might prefer to invest in a growing market, he said.

“The important thing is that Thailand finds a good solution to its current political crisis and that it does more to facilitate foreign investment - for example, by allowing 100% freehold ownership of condominiums by foreigners and extending the lease term from 50 to 60 years.”

He added that one of Phuket’s strengths was that speculative property purchasing was rare, and most buyers purchase resort properties for lifestyle and investment. This differs from Vietnam where most buyers have been speculators. “In Vietnam even the locals were doing exactly the same thing. They were not buying one unit, they were buying five to 10 units in one project.”

Serenity Terraces, located at Chalong Bay, is among the projects on the island that seem well insulated from Western financial problems, he said. It has reported 65% sales in a two-phase development of 52 pool villas and freehold condominiums costing from US$300,000 to $1.1 million.

The developer recently celebrated the completion of the first phase and the second one is due to be finished early next year. Outrigger Serenity Terraces Phuket guarantees that investors who enter its rental programme will earn a 6% annual return.

Mr Hamal said property developers in Phuket looked for a minimum 20% return on their investment to undertake this type of a project.

“But this is only if you are lucky,” he said. “Not everybody makes that kind of money - 20% on their investment. Actually, a lot of developers have not made any money at all. It depends on the rate of sales and how soon they are able to complete their projects.”

About the author

Nina Suebsukcharoen Nina Suebsukcharoen
Nina Suebsukcharoen is a senior journalist with The Bangkok Post, Thailand's first English language newspaper and specialises in the property and real estate sector.
Other posts by Nina Suebsukcharoen ( 21 )
Website: http://www.bangkokpost.com/

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