Signs of things to come? This is what is happening to a formerly resillient neighbouring tourist hot spot...
PHUKET, THAILAND — When there’s blood in the streets, can you sell real estate, even if it is your own? That is the question facing property developers, brokers and investors here.
The island, Thailand’s largest, is one of Asia’s top markets for vacation villas. Behind the casuarina trees along “Millionaire’s Mile,” luxury multimillion-dollar homes perch on cliffs, their marble swimming pools looking out west over the Andaman Sea. Along Phuket’s roads, billboards tout “no risk” deals and flash pictures of fancy seafront apartments.
But its rampant development has ground to a halt as a result of the global financial crisis and the political crisis since the removal of Thaksin Shinawatra, the former prime minister, in a coup in September 2006.
“The market is not slow in Phuket; it is dead. It is absolutely dead,” Larry Cunningham, the chief executive of Phuket One Real Estate, said after the latest disturbances.
Over Songkran, the Thai new year, Prime Minister Abhisit Vejjajiva declared a state of emergency in greater Bangkok, where rioters burned buses and occupied government buildings. Two people died, and 120 were wounded. The demonstrations in Bangkok have cost the tourism industry an estimated 100 billion baht, or $2.8 billion. The state of emergency was lifted last week.
Advocates of the Phuket market have long described it as “bulletproof.” But they are starting to pick their words more carefully. Sondhi Limthongkul, the leader of the “yellow shirt” protest movement that shut both the Bangkok and Phuket airports late last year, narrowly survived an assassination attempt in Bangkok earlier this month in which he was shot in the head, his car riddled with bullets.
For Phuket property, “Teflon-coated” is gaining traction as a less-violent descriptor.
However it is worded, the theory is being sorely tested. The airport closures came at the start of high season here, which runs from November through April. Though tourists are still coming, their numbers are drastically down, and risk-averse Japanese, Korean and Chinese visitors canceled en masse.
“You can’t call it a high season; more of a better low season,” said Peter Schreck, a German who started a dive shop, Absolute Diving, in November near Phuket.
The problems are taking a toll on Phuket’s luxury property market. Already, several projects have been scrapped, and numerous developments are on hold.
Across the road from a sign pointing to “Tomato Beach,” construction on Shangri La’s Phuket Resort & Spa stands idle, a watchman and a guard dog the only signs of life. The development, which would have had a residential component, is stalled indefinitely, as its backing came from Lehman Brothers, which is now defunct.
The land for the Four Seasons resort and luxury villas planned for Rawai, at the southern tip of Phuket, is for sale and the project in jeopardy because it too had financing from Lehman. The Amalfi project planned by Raimon Land, a Bangkok apartment developer, has not gotten off the ground.
Lersuang Group idled three large developments after it ran into financial trouble. Other projects are going slowly, with delays of at least six months at Jumeirah Private Island and at the Yamu, a development designed by Philippe Starck. Both sit off Phuket’s east coast.
“Developers who are partway in are slowing down,” said Charlotte Filleul, the general manager of resort property for the Phuket office of CB Richard Ellis. “A lot of those that were on the drawing board are never going to get off the drawing board.”
Sales at Richard Ellis are down 50 percent compared with a year ago and were particularly slow in the first three months of this year. Whether as a result of the political situation or the financial downturn, buyers “don’t have the same confidence,” Ms. Filleul said.
It is hard to gauge prices accurately. Foreigners are not allowed to own land directly and often complete deals offshore or through Thai partnerships. But Ms. Filleul said that although she had more than 20 multimillion-dollar villas for sale on Phuket — more than usual — sellers had not been telling her they were desperate to raise cash.
“It’s not distressed selling,” Ms. Filleul said. “Sellers are not willing to drop prices. Buyers are looking for a 50 percent discount.”
At the Royal Phuket Marina, a development around a marina for luxury yachts, there have been no property sales since Lunar New Year, in late January.
“People are not in the mood to buy second homes,” said Gulu Lalvani, the chairman of the Royal Phuket Marina and the founder of Binatone Electronics, a maker of cordless phones.
Mr. Lalvani retired in Phuket 10 years ago after having fallen in love with the area in 1991 and bought a villa at the Amanpuri resort. But he grew bored in retirement and started developing property, buying 190 hectares, or 470 acres, of marshy land where a shrimp farm had stood. The marina is now built, with berths for 100 yachts, and the company has sold 82 high-end condominiums around it.
Mr. Lalvani himself has a lavish home, the Grand Villa, at the entrance to the marina. It covers 1,900 square meters, or 20,000 square feet, in a main house and four guest cottages, with space for three yachts in front of its huge expanse of lawn. Behind the home, there is a five-car garage that houses a vintage red MG convertible, a classic purple-and-black Singer convertible and a black Rover town car.
But the house remains at the end of a dirt road and next to a building site. Adjacent to his home, Mr. Lalvani’s company is continuing construction on four stand-alone villas, although only one has sold so far. There are also several apartments unsold in the first phase of the development, and a second phase of the project that would extend the marina dramatically is on hold. Many of the shops in the 8,000 square meters of retail space stand empty.
Mr. Lalvani says he can afford to wait for the market to rebound before he continues the marina expansion, as he has incurred no debt on the project. He has invested $120 million of his own money in it, and like every foreign buyer in Phuket, he has had to pay cash. Although some Thai banks claim they offer mortgages to overseas citizens, local expatriates say that is window dressing, and no such mortgages ever get approved.
Phuket’s boosters hope the fact that it is a cash market will be its salvation. They say that discourages speculation and means that most villa owners are wealthy, with a Phuket home as part of a portfolio of four or five properties.
Published by the New York Times on April 28, 2009
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