Packaging paradise in Phuket

 Want to buy a slice of paradise? How about upon an island with 300 days of sunshine, sparkling seas lapping palm-fringed beaches, international restaurants and abundant, inexpensive shopping? Seaside villas around the world are beyond the reach of most investors, but affordable property remains on Phuket, Thailand’s largest island, where construction and sales have soared in recent years.

PHUKET IN THE MIDST OF ANOTHER BOOM. That's the word from Wayne Graham, a Canadian real estate agent  based on Thailand’s largest island since 2000. Then, he says, there were only 20 small developers, each with a half-dozen units. “Now, there are at least 100, and all these high end projects, each more impressive than the last.”

  Graham runs Eastwest, a Phuket property company. He also serves as consultant to Barama Bay, an ambitious project for a small island just off Phuket’s northeastern shore. 

  Barama Bay features homes starting at $2.3 million, helicopter pick-ups from Phuket’s international airport, plus the plush facilities of six-star hotel chain Jumeirah, renowned for its ultra-luxurious Dubai properties.

   Unquestionably unique, Barama Bay is the ultimate gated community. There will be parking for 73 yachts, but no cars on the 80-hectare island. Instead, residents will roll around in electric carts, with boat ferries (or copter) for the quick hop to nearby Phuket. Clearly, this is paradise to plenty of people; the exclusive island is sold out.

  “This is really the only project of its kind,” says Anthony Franklin, marketing director for TGR Group, the Thai company developing Barama Bay. “Everyone dreams about owning an island,” he notes, “but the reality isn’t that convenient. How do they get there? What about services? It’s easier if we do it all.”

  Response to the project has been so strong, he says, that the company has been looking for another island. “There just aren’t any more like it,” says Graham, who would know. He long ago spotted and became enamored with the small isle, then brokered the deal to turn it into perhaps Phuket’s most exclusive residential real estate project.

  There may be no more Barama Bays on the way, but Phuket abounds with high-end  projects. Nearby, on what was until recently a pristine peninsula with to-die-for sea views on two sides, developer Campbell Kane has assembled an all-star team at Cape Yamu. Adrian Zecha, who created Amanresorts, and French designer Philippe Starck have helped create a stylish array of $3-4 million villas. Each nestles upon lots of an acre or more, commands up to 900 square meters of inside space, plus vast terraces, private pool and breathtaking views over the Andaman Sea or islands dotting Phang Nga Bay. Like Barama, this development will also be anchored by a plush resort.

  The same story is repeated around the island, where the entire coast and even distant hills are humming with construction. “As always, it’s location, location, location,” sighs Stephen Brajak, general manager of the Phuket office of Raimon Land, one of Thailand’s largest developers. “Everyone wants a sea view. And that’s going out of sight.”

  Adds Anthony Lark, an 18-year resident of Phuket, and general manager of Trisara, an upscale resort on the idyllic northwest coast that is expanding with villas ranging to $5 million: “People see this as a sure thing, like the Gold Coast in Australia.”

  Development of Phuket, XXXX miles south of Bangkok, began in the 1970s, but picked up steam as a destination for property buyers nearly two decades ago, with the opening of Amanpuri, a world-famed  boutique resort conceived by Zecha. Small in scale but lavishly outfitted, it drew luxury lovers from around Asia, and celebrities like Kate Moss (who recently wed singer Pete Doherty while staying at a $9,000 a night villa at the romantic resort).

  This was the first Aman, setting high standards for a global brand with over-water bungalows in Bora Bora and fairytale castles in the mountains of Bhutan. But the other properties are strictly resorts. Ironically, adding villas at Amanpuri, which proved the model for Phuket, was an afterthought, says Lark, original manager at Amanpuri. “They had all this surrounding land, and really wanted to protect the space and sense of isolation.”

  So, Aman built villas, which sold largely to residents of Singapore, and expats in Hong Kong, who were the main early buyers of island property. That another decade passed without a similar sort of project shows how long it has taken Phuket to catch on. Yet, the era of luxury homes has arrived in Phuket. And Hong Kong money is behind some of the biggest and most-prized projects on the island.

  These include the $150 million Royal Phuket Marina, now underway, which will offer 400 waterfront condos in a world-class 350-berth yacht facility with restaurant-strewn boardwalk. The project was conceived by Gulu Lalvani, head of Hong Kong-based Binatone Telecom, one of the world’s biggest manufacturers of digital cordless phones.

  Another Hong Kong mogul, Alan Zeman, has already opened a shopping plaza in Surin, and is building Andara, a development of two dozen luxury villas and another boutique hotel where bookings will run above $3,000 per night. Zeman’s clubs and restaurants helped create the Lan Kwai Fong district in Hong Kong.

  Remarkably, this construction boom defies a series of challenges and calamities. From the Asian Financial Crisis a decade ago, through SARS and the Asian Bird Flu scares, the island’s appeal has survived and, if anything, grown stronger. Then, in December 2004 came the tsunami that devastated parts of the island and washed away a tourist industry that is only now returning to pre-tsunami levels.

  Even current concerns about Thailand, still without democracy after a military coup last year, stirred by recent currency controls and tougher visa and property-ownership measures, hasn’t significantly undermined the property market. However, many advocate caution until property-ownership laws are made clearer.

  Foreigners cannot own land in Thailand, but can purchase up to 49 percent of condos. In the past, many took leases for other property on a 30 year basis (with two 30-year options, for a total of 90 years), through a Thai company in which the majority of the board was Thai, but the foreigner held a majority of voting shares. This arrangement was called into question late last year by the current Thai caretaker government.

  “Since then, most of us have adopted a wait-and-see attitude,” notes Graham, who maintains that sales haven’t really cooled off noticeably. “There’s no panic yet. I’d say the word is confused. We’re waiting to see what happens.”

  Meanwhile, the Phuket property boom continues. Graham reckons that high-end villas have appreciated 50-75 percent in the past five years; prime land more so. “Things really started to take off about three or four years ago.” That’s when some of the first big developments launched, with the arrival of firms like Raimon Land.

  A Thai company known for developments in Bangkok and Pattaya, Raimon Land took over Kata Gardens, a 33-unit condominium project overlooking southern Kata Beach. Construction is underway on its next development, the Heights, a 51-unit project that overlooks Kata Gardens. Like the progression around Phuket recently, this will boast better design and materials, more floor space, better views and higher prices.

  Both projects spin apartments around central space with fitness club and pool. Units can be rented by a management company to provide income to owners who are away. Such arrangements are increasingly popular with buyers of holiday homes.

  Returns are difficult to pinpoint, yet local agents report yields of 8-10. This is on the full investment; foreigners cannot finance property through banks in Thailand. New projects have been advertising guaranteed returns, usually 6-8 percent.  

  Condominiums, which have offered foreigners the easiest entry into the Thai property market, have largely driven Phuket in the past. About 850 units hit the market in 2006, more than double the stock added in 2004, according to Raimon Land. On average, less than 10 percent of sales are high-end homes. Most condos sell for $50,000 to $500,000.

  These prices make them particularly popular with middle-class European buyers, who form the major block of buyers in Phuket along with Asian ex-pats. Thais from Bangkok are also an increasing market for island real estate, particularly among the massive low-cost developments off-limits to foreigners. Yet Thais are also buying into big projects, although in smaller number than buyers from Hong Kong, Singapore and Europe.

   “The attractions are obvious. You have a sunny location, good schools, hospitals and a secure environment,” says James Pitchon, executive director of CB Richard Ellis, which is a major player in Thai real estate, with 70 staff on Phuket alone. “Anyone working in a horrible climate wants a second home in the sun.”

  He notes that an estimated 300,000 people in the UK alone now claim holiday homes. Pension checks go to a million British-born people living overseas, largely in sunny climates. Much of that movement has been to Spain and Greece in the past. “But this is a global trend,” he notes. “Thailand has the chance to become like Spain to Europe, a new and attractive destination for holiday homes and retirement.”

  Phuket options vary, but a popular model has evolved as can be seen in two of the most visible high-end projects, the Royal Phuket Marina and Andara. They would seem opposites at first glance. Andara sits on a slope with stunning sea views, on a leafy hillside far from the bustle of Phuket’s beach towns. The appeal of Royal Phuket Marina is the community, which will feature a wide array of retail outlets and services like time-share on yachts for those without their own. “But the vision of this is much more than just a marina,” notes spokesman Norbert Zuber. “We are creating a complete destination, like the Riviera or Monte Carlo.”

  Lofty ambitions, but Phuket is maturing, and a top-notch yacht facility puts it on the charts of global jetsetters. Despite differences, these two projects clearly illustrate two major trends in Phuket property. More and more projects involve a hotel, particularly luxury villas, which were mainly custom-built before. Now, they increasingly sit in clusters, and rental return is as much a consideration as overall investment.

  The other key trend is towards dependable firms and bankable brand names. This is best seen in the highly-successful operation of Laguna Phuket, a massive development of five luxury hotels and villas that has registered solid returns and keeps expanding to meet growing demand. But when launched in the early 1990s, many thought the project too distant from established beaches and contained too many competing products. Yet, hotels are full, and the spillover provides rental income for the owners of the first hotel-run condos introduced on Phuket by the Sheraton Grande Laguna Phuket.

  A similar approach was mounted at the nearby J. W. Marriott, which has consistently been an island leader on rates and occupancy. An entire wing was sold in a time-share scheme that critics said would never catch on in a market crowded with resorts and condos. The 60 units sold so well, Marriott recently added 84 more. All sold instantly.

Ron Gluckman is an American reporter who has been living in and covering Asia since 1991. He is currently based in Bangkok, but spends much of his time in Cambodia, where he wrote this piece for the Urban Land Institute, which published it in October 2007.

All pictures by Ron Gluckman.

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