Real Estate

More and more people are choosing to buy properties in Phuket, Thailand. Phuket is one of Asia’s most sophisticated and most established property markets. Over the past twenty years, property developments have been sprouting around the island that heightened the influx of investors. Currently, the demand for properties is high, especially in newly developed areas of Surin, Bang Tao Beach, Layan, Cherng Talay, and the coastal areas in the southern part of the island.

Compared to traditional areas, Phuket boasts an assortment of options to property investors, whether they are looking for apartments, condominiums, villas, or residential houses. Property investors will not run out of affordable options. Although most part of the development in Phuket is designed for the wealthy, there are affordable properties that stretch over the bays of the island’s west coast.

Reasons of Investing in Phuket

There are many reasons why people choose Phuket as a property investment opportunity. Whether they are looking for a permanent home, a holiday getaway, or an investment opportunity, the primary reasons in considering a property in Phuket can be classified broadly as leisure, financial, and social.

1. Leisure and Culture – Phuket is home to some of Asia’s island resorts that boast stunning natural surroundings combined with extraordinary facilities for guests. It is home to idyllic beaches and unscathed rainforests, making it a perfect destination for pleasure seekers, extreme sports junkies, or food connoisseurs. Properties in Phuket have something unique to offer to everyone who wants to imbibe the authentic culture and experience the exceptional relaxation.

 2. Financial Opportunity – Phuket is one of the premier tourist destinations in Thailand and is recognized as one of the wealthiest provinces in the kingdom. The Thai government realized the value of Phuket in the kingdom’s entire economy. Phuket remains as one of the commanding presence, in terms of investment opportunities. This makes Phuket one of the leading choices of individuals who want to have a piece of property in one of the fastest-growing economies in Thailand.

 3. Social and Economic – The island’s economy is one of the lowest costs of living cited, all over the globe. Compared to other western countries, Phuket has become one of the most attractive choice for people who want to retire because it remain to be the most comfortable and modest place to live. Phuket is the core location for many infrastructure developments in the recent years. Additionally, Phuket offers high standards of healthcare services at very reasonable price.

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The limited number of new luxury villas in Phuket has doubled the price of resale units, as demand is relatively strong in this niche market.

Aliwassa Pathnadabutr, managing director of property consultant CB Richard Ellis (Thailand), said top-end villas on the island were part of an exclusive market characterised by a limited number of high-value transactions.

Major players used to be small foreign developers with limited financial backing, but they have been replaced by large operators.

This is positive for the market in terms of reduced risks for buyers and an improvement in the quality of villas and designs.

Most villa sales are in the entry-level segment with prices below 15 million baht. Despite ongoing demand in the luxury segment, buyers face a limited supply.

“In recent years, buyers’ preferences in the luxury sector have shifted towards hotel-branded products that offer quality management, five-star services and facilities as well as the ability to generate rental income,” Ms Aliwassa said.

However, the proportion of completed luxury villas priced above 35 million baht with hotel branding remains limited and accounts for less than 10% of the villa market.

“We’re now beginning to see Western expat groups working in Asia who bought prior to the 2008 financial crisis starting to re-enter the market,” Ms Aliwassa said.

With the completion of Phuket airport’s expansion next year, CBRE expects to see further growth in tourist arrivals having a positive effect on resort property sales.

Price points have clearly shifted in the past 10 years for successful developments.

In 2005, the first phase of Andara Resort & Villas was launched with units priced at US$3-4 million.

Today, resales at Andara are fetching $6-8 million, with some transactions achieving a 100% capital gain.

Launch prices of some luxury projects have also hit the $10-million mark.

Andy Kunz, general manager of luxury villa and hotel project Point Yamu by Como, said 2015 was not proving a good year for Phuket, as the number of Russian and other Western tourists had decreased.

“Tourism in Phuket has been unfavourable since the coup last year, because Phuket was mentioned in negative ways,” he said.

Some four- and five-star and big-chain hoteliers late last year banded together to set up the Phuket Hotels Association.

They held meetings to try to figure out how to restore the tourism market and create a Phuket brand.

The association tried to persuade budget hoteliers to join, but that segment had no problem with their target groups.

Starting operations in late 2013, Point Yamu by Como is is located on Cape Yamu on the eastern side of the island.

The hotel comprises 79 hotel rooms and 27 villas, with rates ranging from 40,000 and 100,000 baht a night.

Of the 27 villas, 20 are offered for sale at prices ranging from 61-175 million baht.

Total sales value of the 20 villas is 1.7 billion baht, with three units sold to Singaporeans after a soft launch early last year.

All villas for sale are required to enter a rental programme in which owners can stay 60 days a year and receive a rental yield.

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Amending the law to allow median prices based on current appraisal prices to be used for the local development tax could be an alternative to generate massive tax income instead of pushing the controversial land and buildings tax, says a source familiar with the subject.

The strategy could help revenue from the local development tax surge by 100 times to 100 billion baht, said the source.

The local development tax charges are based on land prices appraised between 1978 and 1981. A Fiscal Policy Office (FPO) study found a big difference between the prices of land appraised during that period and those evaluated during 2004-07, from four to more than 4,000 times.

Given that the local development tax is regressive, based on outdated appraisal prices and has many waivers, the Finance Ministry pitched the idea of the land and buildings tax bill replacing a revamped local development tax and a house and land tax in order to raise revenue for local administrators, alleviating the government’s fiscal burden in supporting them.

The local development tax charges 0.5% for median land prices worth less than 30,000 baht but only 0.2% for those worth more than 30,000. Moreover, landlords who own land plots of up to five rai, depending on the location, are tax-exempt. Some 90% of Thais hold less than one rai of land.

The house and land tax, which charges 12.5% of annual rental payments, is blamed for the tax disparity as rental appraisal depends on related state officials’ judgements. Some landlords also pass on the tax burden to tenants. The tax contributes 23 billion baht a year to the government’s revenue.

However, the bill has been shelved for months following public outcry for fear of a higher financial burden because of the new tax.

The source said the market value of land plots has soared on average over 300 times the past three decades.

One option is to exempt the value of buildings from the land and buildings tax bill to lower the burden on home and building owners, as only land would be levied, noted the FPO study.

Earlier, former finance minister Sommai Phasee opposed the idea of taxing only the land.

The source said the land value averaged 70% of the price, so taxing it would be feasible.

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Property developers are urging the government and its new economic cabinet to use tax incentives to help restore housing demand in the remaining months of this year.

They are concerned that already-soft demand will be weakened further by Monday night’s bomb attack.

Cutting property tax and transaction fees would help to stimulate the economy in general and the property market in particular, said Thongma Vijitpongpun, president and chief executive of Pruksa Real Estate Plc.

He proposes the property transfer fee be reduced to 0.02% from 2%, mortgage fee to 0.01% from 1% and special business tax to 0.01% from 3.3%.

The cuts should be applied to housing units priced 2 million baht or lower, which would help low-income earners to afford their own home, Mr Thongma said.

“If these incentives were applied to higher-priced segments, annual tax revenue could miss the target,” he said.

Atip Bijanonda, president of the Housing Business Association (HBA), said the overall economy in the remaining months and full-year GDP growth would depend largely on economic stimulus.

“We’re not worried about new-home transfers in the rest of the year, as those will keep growing,” he said. “But new-home sales are a concern due to unfavourable market sentiment in the housing sector and the weak economy, which is expected to be dampened further by the deadly bombing.”

The HBA has revised down this year’s housing market forecast to only zero to 5% growth from 5-10%.

Mr Atip suggests developers stay more focused on cash flow and be more cautious of new projects being launched between now and year-end.

Theerathat Singnarongthon, assistant chief executive of  Property Perfect Plc, said the company recently scaled down the number of new launches this year to 15 projects worth a combined 20 billion baht from 22 projects worth 26 billion.

“Trying to generate sales amid weak market sentiment is exhausting, particularly after the bombing,” he said.

“We need to be more selective in new launches and make sure of demand.”

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With the island’s real estate market staying strong, some owners could be thinking of selling their property. If so, here are some tips for making this move.

Establishing a Price

Consider what you paid for the property, how long you have lived there, what similar properties have sold for, any improvements added, present condition of the property, ask the agent about the current property climate and arm yourself with the facts.

Signage

Allowing the agent to erect a sign is very important as their brand name and reputation may draw in passers by as they understand the professional nature of the company which can assist with the buying process while also representing their interests.

Qualifying the buyer

A major part of the agent’s job is to ensure that you have a genuine buyer, that he or she is serious and that they actually have the funds available. Many times private sales end in disaster and wasted effort due to misunderstandings between the parties and lack of knowledge of the buying process.

Price Parity

If you are not listing exclusively with one agent, then ensuring that other agents offer the same price is important.

Negotiating

The key to remember is to not get wrapped up in any games. If you keep your goals in focus at all times, you will be better able to respond to offers. You will have three choices when an offer comes in. You can accept the offer, reject the offer or make a counter offer. In the end it is what the buyer is willing to pay that counts.

Sharing costs

In Thailand, it is customary for the seller and buyer to share the transfer costs 50/50, but this is up to you to negotiate. Sellers must understand the costs associated with selling their property and incorporate them into the selling price. Trying to renegotiate who pays what fees after a selling price has been agreed with a buyer will almost certainly lose the sale.

Buyer payment

Let your agent know at the beginning where and how you wish to be paid, as many buyers wish to make payment offshore or outside Thailand and they need to know up front to avoid unnecessary bank and interest charges. Regardless, a percentage of the purchase price must be paid in Thailand to cover transfer and tax fees but the amount depends on negotiation with the seller.

Title Deed

Ensure that there are no complications and that the property is free to be sold with no encumbrances and that the seller is the name on the back of the title deed (or company). If the property was set up through a Thai company, then the company must be ‘clean’ and cannot have been used for other business.

Sellers must ensure that they have all necessary original documentation for their property to complete a sale. A seller should be prepared to provide a buyer with copies of all property documents as soon as a sales price has been agreed so the buyer can complete due diligence on the property. If documentation cannot be provided in time, or is missing, this will delay the sale and could lose the sale altogether.

Incentives

To set your property aside from others, it is a good idea to offer some enticement such as advance rental bookings, thereby effectively giving the buyer a reduction in sales prices; free furniture; maid for a period; and so on.

Reservation deposit

When the buyer makes an offer acceptable to the seller, usually a non-refundable deposit is taken until such time as contracts are exchanged. This is a minimum 150,000 baht or 1 per cent of the selling price, whichever is greater. The reservation agreement allows the buyer 21 to 45 days to review and agree to the contracts. If a deal cannot be reached in that time, the reservation can be extended by mutual agreement.

From offer to close

It is normal once a reservation deposit has been secured for the process to take one to two months or more to the final payment. The buyer first needs a lawyer to do due diligence and for the seller to provide a ‘sale and purchase contract’ which has to be reviewed and agreed by the buyer’s lawyer and any changes made and agreed between the parties.

Once this is completed and contracts are signed, a visit to the land office to exchange title deed and buyer’s final payment is the final stage. In some instances, you may need to first give the land office a 30-day notice period prior to transferring ownership.

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