Bangkok--23 Feb--CB Richard Ellis
Tourism is critical to Thailand’s economy. It contributed 9% to GDP in 2005 according to Bank of Thailand statistics.
International tourist arrivals reached 13.4 million in 2006. Historically tourists stayed in hotel accommodation but following a global trend there is growing demand for villas and condominiums particularly for long stay tourists. Also following a global trend is the demand from tourists to own resort properties in Thailand.
“Resort property development is an extension of the tourist industry and is an important element in attracting high income short and long term stay tourists.” according to David Simister Chairman of CB Richard Ellis Thailand.
Spain is a good example of a country that has leveraged its popularity as a tourist destination to become the most favoured location for second homes in Europe. Spain attracted 56 million tourists in 2005.
The UK Government’s Survey of English Housing reports that 231,000 British households own property overseas with 27% of this number owning a property in Spain.
Ownership of a second home is also popular in many other countries in Northern Europe and Scandinavia with the Spain being the most popular country to purchase an overseas property.
There are a number of reasons why people want to own an overseas property, firstly as a holiday/retirement home and secondly as an investment.
Retirement overseas in warmer climates is increasing, for example the UK department of Works and Pensions reported that 660,000 UK born people received a pension overseas in 2005.
CB Richard Ellis believes that the trend of owning property and retiring overseas is going to grow. Thailand is in a strong position to benefit from this trend. Thailand is already well recognized as a tourist brand and is therefore well positioned as the preferred location in Asia to own a second home.
Costs in Europe are increasing both for property and general living expenses while at the same time the quality of living is increasing in Thailand.
One example is healthcare, where international standard hospitals are available in Bangkok and some of the main resort destinations. Thailand now has the necessary infrastructure to satisfy many foreign retirees, long-stay tourists and second home purchasers.
Everyone can fly long haul, flying has become more and more affordable and distance is no longer a barrier. The emergence of low cost carriers within Asia has grown dramatically and it is feasible to fly from Hong Kong or Singapore to Phuket for the weekend. It is feasible for someone to live in Europe and fly to Thailand several times a year to use their holiday home.
Although individuals had constructed holiday homes in Phuket for a number of years the first significant development targeting foreign purchasers was the Allamanda condominium launched in Bang Tao Bay Phuket in 1991 and marketed overseas by CB Richard Ellis. The majority of purchasers were based in Hong Kong and Singapore.
The financial crash in 1997 halted development in resorts but activity resumed in 2000 and has been growing rapidly ever since.
David Simister believes that there are significant benefits to local economies from second home developments. Owners and people who rent properties stay longer and visit more frequently. They are significant users of services including retailers, maintenance companies and other locally based businesses. Local authorities benefit from property tax charged on rentals.
Ownership of property reduces volatility in visitor arrivals as there is an incentive for owners to use their own property rather than choose an alternative destination.
There are challenges in the growth of resort property development especially protecting the environment so that a destination remains attractive without restrictions that are so onerous that development is not feasible.
There are obstacles to the growth of the Thai resort property markets and these are restricted foreign ownership and a prohibition on lending to foreign property purchasers.
Currently under Thai Law foreigners are allowed to buy up to 49% in area terms of a condominium.
Foreigners are not allowed to own land and the maximum length of lease is 30 years, although developers can offer options to renew extending the lease term to 90 years.
In many resort areas there is not enough local demand for high-end resort condominium units and so developers are unable to sell the 51% Thai quota of the building. The main option open to the developers is to offer 30 year leases, plus options to renew, on the Thai quota condominium units.
30 year leases are not as attractive freehold title or longer term leases.
They are relatively illiquid because of their short length and so there is a limited secondary market in resales.
If offering unlimited ownership of condominiums or freehold land title is not acceptable then in order to grow the resort property market it will be necessary to offer increased foreign ownership of condominium property and longer leases of 90 years.
Currently foreign condominium purchasers are prohibited from borrowing money locally to purchase a condominium as the foreign ownership regulations state that all funds used to purchase a condominium must come from overseas as foreign currency.
In the past many other countries in Asia were equally restrictive but now other countries are opening up their property markets and although Thailand has had a head start and has a natural advantage in attracting overseas property buyers this position will be eroded as other countries offer more attractive packages.
Malaysia has limited regulations on foreign ownership of property. Foreign ownership is regulated by the Foreign Investment Committee (F.I.C.). Any acquisition of property by a foreign interest requires the approval of the F.I.C. however this is a formality and rarely is approval withheld. The only restriction is that the property should be valued at more than 150,000 Malaysian Ringgit (the equivalent to 1.5 million baht). Foreigners are allowed to borrow locally to fund property purchases.
Malaysia is also promoting a special programme under “Malaysia my Second Home” . The Malaysian government grants a ten year visa to citizens of all countries providing they open a fixed deposit at a Malaysian bank in the amount 300,000 Malaysian Ringgit (about three million baht) and the right to buy up to two houses priced at more than 150,000 Malaysian Ringgit each (1.5 million baht).
Vietnam offers overseas buyers 50 year leases and China offers foreigners a maximum leasehold period of 70 years for land intended for residential use.
In Singapore there is no restriction on foreigners owning freehold condominiums but the only freehold landed property that is available for foreigners is on Sentosa Island.
Foreign Demand for Thai property initially came from expatriates based in Asia. This demand has now grown to include buyers from Northern Europe and Scandinavia.
Potential future demand will come from within Asia. The emerging middle classes in Asia are for the first time experiencing overseas leisure travel. According to the Xinhua the Chinese news agency the number of outbound travelers from the Chinese mainland reached 34.5 million in 2006. The top ten destinations for Chinese mainland travelers were Hong Kong, Macao, Japan, Thailand, The Republic of Korea, Russia, The United States, Singapore, Vietnam and Malaysia.
The World wealth report produced by Merrill Lynch and Cap Gemini estimates that there are over 2.4 million people in the Asia Pacific region in 2005 with a net financial worth of over one million US$ dollars.
Currently there are currency restrictions in countries such as China but when these are removed there will be significant demand for vacation homes from potential Asian buyers.
The resort property market is an extension of the tourist market where Thailand has worked hard to establish itself as a leading destination.
Thai government policy has been to focus growth in tourism on quality not just quantity with the objective of increasing the amount spent by individual tourists and extending the length of stay.
The sale of resort property to tourists will achieve both those goals.
Thailand has established itself as a world class tourist destination but faces the possibility of falling behind as other destinations open up their resort property markets.
The key to Thailand maintaining its position as Asia’s leading resort property market will be a combination of thoughtful environmental control and less restrictive ownership issues with greater foreign quota of condominiums, longer lease terms of 90 years and the ability of foreign purchasers to finance property acquisitions.
Resort property sales will be a key catalyst in upgrading the type of long stay tourist from back packer to billionaire.