Income-Producing Property in Phuket
03 Oct 2018
Phuket is Thailand’s leading island destination with tourist arrivals reaching 8.4 million in 2017. The ongoing growth of tourism has driven a demand for change in the condominium market, from holiday homes to income-producing properties over a period of time.
Back in 1993, CBRE became the sole agent for Allamanda at Laguna which was Phuket’s first major resort condominium development. The project offered a rental program to buyers who would rent out their units throughout the year in exchange for rental revenue and the right to use their own units for only a limited duration.
Little did the market know that this scheme would be the present norm for the Phuket resort condominium market.
When resort property development recommenced in Phuket after the Asian financial crisis of 1997, the majority of buyers for most developments including villas and condominiums, were foreigners looking for holiday homes to use for part of the year.
In recent years, the typical buyer of Phuket property has changed and is looking at yields, which then requires the vendor to have a management company that can both market and manage the property on a daily rate basis like a hotel. Some of the best properties have achieved this by having a hotel on the same site, making effective use of condominium units as additional inventory to their hotel rooms.
Considering that these properties will have to compete with hotels, having a hotel management group on site will increase a buyer’s confidence, especially when the property is managed by an established brand.
Developers should focus on properties offering sea view units because they are easier to rent out and are more attractive for end users seeking a vacation home in Phuket.
On the other end, a buyer’s point of view for achieving a reasonable yield also comes down to purchasing the right property, with optimal sizing, layout, and an achievable room rate, thereby resulting in reasonable rental income.
Many developers are offering “guaranteed yields”. As with anything, a guarantee is only as good as the guarantor; in other words, the ability of that party to operate the property to produce income over the long term is important, not just during period of the guarantee.
It is then up to the buyer to carefully look who will generate the most income and how they will achieve it. It is, after all, only over the next couple of years where it will be clear which developers are able to provide a sustainable income stream and quality management.
An article written by Aaron Aerni Kuvanun, senior analysts at Research & Consulting, CBRE Thailand for Bangkok Post dated 3 October 2018.
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