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Property on Phuket suffered in 2007

2007: When Property Took a Tumble

Saturday, December 22, 2007
Year in Review
AS MUCH as Phuketwan supports the property industry on Phuket, it's now True Confessions time. And the bottom line is that 2007 was a dismal year for real estate on the island.

Some people have tagged it ''A Year of Consolidation.'' That makes it sound planned. Nothing about 2007 was on the cards. And none of it was good.

If Monty Python hadn't thought of it first, Phuket's property sales people would all be up there now, attached to crucifixes, singing ''Always Look on the Bright Side of Life.''

Why? Because as bad as 2007 was for nearly all of them, collectively they think that 2008 will be a vast improvement. It just has to be. Or else.

The year actually brought a double whammy. Dealing with the horrors associated with one big, bad wolf, the Foreign Business Act, was enough.

Then along came sub-prime, the biggest and baddest wolf of all. The US mortgage debacle means that many potential buyers now struggle to win financing offshore.

So a global credit squeeze is off and running, with factors beyond the control of the industry and the Thai government now at play, affecting future prospects.

There's even concern throughout the industry that a cycle of debt has already begun to take hold on the island, with many large invoices going into the Too Hard basket.

Other projects where properties have been available off the plan for two years await the income from sufficient sales to begin building.

Strange as it may seem from the cusp of 2008, it was the property industry that became the rock for the island's recovery after the 2004 tsunami.

While thorough statistical evidence is just not compiled, it was probably the case that when post-tsunami tourism sank to its 2005 low season low point, the real estate business became more important economically to Phuket.

For a time, optimists thought that property would continue its ascendancy. Everything was going along just beautifully through 2006, until the September coup. Nothing has gone right since.

For the island as a whole, the big positive is that with a two-industry economic base, problems in one do not necessarily trigger a full-scale recession.

Tourism is riding at unprecedented heights in the 2007-2008 high season. But property . . . ask any property guru to be quoted by name in print and they will become uncharacteristically shy.

Yet some of them are prepared to suspend their professional positiveness in private just long enough to confirm the anecdotal evidence that 2007 was a shocker.

This is not to say that sales did not take place. They did.

For the record, property prices on Phuket have officially risen 160 percent in the past four years. But the figures from Treasury are inevitably out of date by the time they become public.

They do not take account of current market prices, which are much higher, especially along the island's Western seaboard.

Anecdotally, the evidence is that it was a donut affair, with sales at peak prices and at the lower levels, with a very large hole in the middle.

One real estate guru reported that a rival sold a couple of obviously distinctive properties, one for $US8.5 million and the other for $US4.5 million.

That agency probably contains the only seriously elated real estate people on the island.

At the other end, sales of apartments for between three to four million baht were recorded.

If you are very rich and you happen to like what you see, then price is no problem. If you are only spending three million baht, then again, there is little cause for great concern.

But in the middle . . . even the provision of financing, not always easy to find and a great innovation to stimulate sales, did not guarantee a good year.

At the top end, at least one of the best brands on the island suffered a thiry-three percent falloff from 2006 to 2007, despite intensified marketing and quality products.

For many others, a one-third falloff would have been very acceptable. Another guru, with a completed quality product ready and waiting, sold just one villa in eight months.

There are fears, too, that the marketplace has permanently altered.

Some developers believe that Hong Kong, for years a prime source of cashed-up expats, has now been fully explored.

Scandinavians are more reluctant to buy now. Given the strength of their currency against the dollar, they and the British also have the US or even Eastern Europe as closer options for a holiday home.

The year has been ''terrible across the board,'' one guru said. ''I can't think of a worse year and I've sold property in many countries,'' said another.

The evidence of the 2007 torment can be seen on the slopes of hills all around the coast, where construction on some projects has slowed or stopped.

Some lessons have been learned: fortunately there hasn't been the excessively optimistic construction rush that left so many half-finished skyscrapers as skeletons on the Bangkok landscape after the 1997 crash.

Value added extras, such as furniture packages, have been used as inducements to seal a sale, but with limited success.

Remarkably, prices have not fallen. But then, even a killer tsunami failed to force property developers to take a hit.

These guys are rugged individuals who, in their other lives, would probably have been found riding a wild camel naked across Antarctica or converting cannibals to Christianity.

December brought some cheering news, as Phuketwan revealed exclusively, with the purchase of Mai Thon island off Phuket for 765 million baht and the 1070 rai around the Thai Muang golf course in Phang Nga selling for more than two billion baht.

Sales at the large scale end do not necessarily trigger other business, although plenty will be hoping these two will initiate a trickle-down effect on the market.

With the national election on December 23 set to signal a fresh course for the future, the real estate fraternity is praying for commonsense changes.

Ten years ago Britain's Queen Elizabeth II had her ''annus horribilis'' when Princess Diana died.

Phuket's real estate fraternity could find saltier Latin to describe 2007.

The best thing about the year: it's over. And Phuket remains a great destination.

But beyond that, too much optimism might be unwise. The sub-prime global credit crunch still has quite a way to run.

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