Phuket Real Estate Market Indian Investors

Phuket real estate market interesting for Indian investors

Indians are following Thailand's success in developing resort properties, especially luxury villas, and its stellar hospitality industry with a view to tap expertise in these fields, says Ramesh K. Hamal, development director of Green Heritage Group which is handling the marketing and sales of Movenpick Residence in Phuket.

Indians want this know-how because Thailand has an established market in high-end hospitality. Mr Hamal has been advising his countrymen on the investment and concept aspects of developing luxury villas and integrating them with hotels, "but we haven't locked up any projects so far."

Some Thai investors, meanwhile, are interested in the former Portuguese enclave of Goa on India's east coast but Mr Hamal noted that while Goa has a lot of potential, finding a good site is very difficult.

As a large number of Indians have now become wealthier, they are travelling more frequently and Phuket is a popular destination. Some Indians have even bought property on the island with a preference for villas.

While it is difficult to work out average prices of properties in India given its size and diversity, Mr Hamal said high-end property in general was probably more expensive than in Thailand.

"It's so difficult to do the average in India because there are so many one-time developers but one way is to check hotel rates ... and hotel rates in Goa are at least one-and-a-half times higher than in Phuket."

At a recent hotel conference in Mumbai, it emerged that the Indian real estate sector needs outside help in terms of the international philosophy of undertaking and managing a project.

Mr Hamal said that overseas residents accounted for only about 10% of the resort property buyers in India but there was demand for quality projects, especially among non-resident Indians. "In India, there are so many people who can buy and there are so many non-resident Indians _ very rich, very powerful, very mobile _ and they do buy and one of their first priorities is to buy in India."

Mr Hamal, whose group is handling the marketing and sales of other projects in Phuket including Katamanda, Kata Heights, Kata Gardens and Serenity Terraces, lamented that sales have been slow of late because foreign buyers are nervous about how the amendments of the Foreign Business Act will shape up. The appreciating baht is another problem for these foreign buyers.

While he believes the leasehold structure is the best option for overseas buyers, he pointed out that many are not comfortable with it.

And even though they can buy up to 49% of the net space in a condominium on a freehold basis, a problem arises in selling the remaining units because in Phuket, unlike Bangkok, the buyer profile is almost 100% foreigners. "And you can offer them 49%, as soon as you hit the barrier, 49%, you still have to sell the remaining 51%, how do you sell them?"

One way is to offer discounts to those acquiring leaseholds and this is generally around 15% to 20%. But even this attractive discount does not sway all buyers.

While intrepid foreigners have found ways around legal obstacles in acquiring land in Phuket, Mr Hamal pointed out it is a cumbersome process.

The looming amendment of the FBA has also had a strong impact with an increase in the number of condo projects.

"Based on Raimon Land's latest second-quarter condo report, there are about 38 condo projects in Phuket but because of this 49-51% problem, and Phuket's buyers primarily being foreigners, I mean there are hardly 1% Thai buyers, so it's a Catch-22 situation."

However, despite the problems prices have not dropped on the island, but Mr Hamal did note a shift with more branded products linked to hotels likely to come into the market. "Phuket will see a big increase in those [branded properties]. Prices _ I won't be surprised if some of the branded quality is very good, 5-6 star residential villas going for more than $5 million."

However Mr Hamal, whose group is from the UK, observed that the key factors for the Thai property market are political stability and clarity on what regulations are in place. If these regulations are investor-friendly then of course Thailand has very good prospects but other countries are also vying for foreign money _ Vietnam and Malaysia being prime examples. Foreigners can now get freehold land in some Malaysian resort areas while Vietnam could become a big competitor in five years' time.

Farther afield, Morocco is a good example of how fast business regulations can be changed to make them investor-friendly. In Morocco the capital gains tax is only 20% and no tax is levied on apartment rentals for the first five years.