Paradise regaining

Surin Beach is one of several luxury resorts clustered on the west coast of Phuket

With its lovely curved beaches, cyan sea and trembling palms, Phuket is a tropical dream in spades – but is this the right time to jump on the coconut cart?

The global financial crisis dealt a ferocious body blow to this southern Thai island just as it seemed to have recovered its poise after the depredations of the aftermath of the 2004 tsunami. The property market is overwhelmingly geared towards foreign buyers, most of whom swiftly retreated as the west’s financial markets wilted.

The word swiftly went round Asia’s expat circles that presumptuous Phuket had had its comeuppance. Several ambitious property projects have indeed crashed or stalled, although you would hardly realise this from reading the local newspapers, for Phuket tradition dictates that failed projects fold in silence and without announcement. The current high season is also noticeably flat, which is unhelpful because many buyers start out as tourists.

After what has been by common consent “a dreadful year” for house sales, however, properties have started selling again in Phuket and, according to its advocates, Phuket is once again signalling its place as the “Saint-Tropez of Asia”.

About 40 houses have been sold in the past four months, breaking a kind of Mexican stand-off between buyers hunting for bargains and sellers reluctant to drop prices, says Nick Anthony of Indigo Real Estate, a boutique agency. “People have seen that, even when severely tested, property prices have not crashed – and investors are starting to bite.”

Part of the reason is that the property market on this singular island – four-fifths the size of Singapore – is mature, big and extremely varied.

Do not imagine, therefore, that prices, even now, are as friendly as the smiling inhabitants appear. The easy days of tie-dyed living in hippy huts are decades gone and, in the absence of a market collapse, paradise remains significantly more expensive than, say, the great majority of homes in the rest of Thailand.

“Where else would you go? Bali is a competitor but is less popular and doesn’t have quite the magic,” says Sue Ma, chief executive of IndoChine Resort and Villas, part of an overseas Chinese family group that has sold 40 villas and condos on the island.

“We looked at Bali for years but we came here. The typical buyer is a Hong Kong- or Singapore-based expat in their late-40s or early-50s with a flexible schedule and a bit of money. This is where they want to come. It’s going to get better and better,” Ma says.

If sales in Phuket are still slow, that is partly because owners remain reluctant to trim prices, say experts. The local banks have no interest in fire sales to stimulate the market because foreigners do not have access to mortgages and must pay in cash.

Many places in Asia would like to steal Phuket’s claim to be the most popular location for wealthy expats seeking to buy a beach home. Vietnam, with its long, appealing coastline and strong culture, is now attracting attention, for example. Yet, despite its notorious taxi mafia and other dubious characters, people keep being drawn by Phuket’s island charm.

“I sleep outside in shorts, I eat unbelievably exotic food served by smiling people, I drink the juice of fresh coconuts looking at a perfect sea. Let’s just say it’s better than Sweden in winter,” says Björn Hanssen, a “semi-retired” engineer who has bought a condominium on expensive Surin Beach.

Prime seaview homes have become so scarce on the island that the release of an attractive villa on to the market now causes quite a stir, according to Phanom Kanjanathiemthao, managing director of estate agency Knight Frank Thailand.

“The buyers come out when a good house becomes available … because everyone knows that although this place might wobble, it will surely never be defeated,” Phanom says.

Eric Levine, the founder of the California Fitness and, more recently, Thailand’s California Wow chains of gyms, reportedly wants $25m for his four-bedroom beachside “Villa Beyond” that boasts the world’s biggest home gym. “The price tends to fluctuate with his mood,” says one estate agent.

Prime seaview villas on the island have become scarce

Substantial villas with pools and sea views fetch at least $1m and often much more (property prices are routinely quoted in dollars). Significantly cheaper homes will tend to be smaller, inland or shoddy.

Phuket’s size is deceptive: it is mostly hilly and subject to planning restrictions, though these are sometimes only theoretical. Also, the prestige beaches – Surin, Karon, Kata as well tacky nightlife spot Patong – are all clustered on the west coast. To find a decent beachfront for his Hugh Hefner-esque mini-palace, Levine had to build just over the connecting causeway on the mainland on a strip of seafront boldly described by one broker as “the Hamptons” of Phuket, where buyers can expect to pay at least half a million dollars for a good-sized seaview condominium.

For Phuket has been resilient in the face of the 2004 tsunami, bird flu, Thailand’s rolling political crisis, an ugly Islamic insurgency in the far south and the global financial crisis. For that, thank an undeniable prettiness that still outshines much hasty development – and also thank the strength of Asia’s main economies.

“No one really lives there,” says Robert Collins, chief executive of estate agency Savills Thailand. “It’s all second and third homes for the expat community in Asia. If Hong Kong went into decline, Phuket would decline. The link is crystal clear.”

This does not mean that prices will climb ever upwards once the current weakness has passed. “Prices doubled in 5-6 years [before the crisis] but they have peaked and are going to plateau for the foreseeable future,” says Ma.

It is worth bearing in mind, however, that no matter what the salesmen might say, foreigners cannot legally own land in Thailand. The device of setting up a company (with passive Thai partners, usually lawyers) to “own” a house is widespread but legally dubious and at risk if, for example, a chauvinist wind blows. In a brief fit of nationalistic fervour, some generals threatened a crackdown on “illegal” foreign ownership of Phuket property after the bloodless 2006 coup.

Foreigners can sign a 30-year lease with confidence but sellers who tout two “automatic” lease renewals are on questionable legal ground.

“I recommend negotiating on the basis of a 30-year lease, which is guaranteed in law,” says Sopon Pornchokchai, president of the Agency for Real Estate Affairs, an independent consultancy. “If the sellers are tricky you may have trouble renewing it.”

Unfortunately the political divide in Thailand means there is no political will for the foreseeable future to resolve ownership uncertainties. Buying a freehold condominium is legally fine but do check that Thais ultimately own at least 51 per cent of any particular apartment block, so that your title is legal.

Many people who intend to live only part of the year in Phuket assume that with 100 flights a day landing on the island, renting their property will be easy. It isn’t.

“Phuket is very seasonal and there is a lot of competition. Don’t expect a big return. With a pool villa you might only cover your maintenance costs by renting,” warns Ma.

“Don’t expect Phuket to turn your life around. Things can get pretty quiet around here if you don’t carve out your own lifestyle,” adds Larry Cunningham, managing director of Phuket One Realestate and Australia’s honorary consul on the island.

One surgeon from New York, for example, spent $500,000 on a villa on the edge of an artificial lake in one of the island’s most prestigious developments, half an hour’s drive from the airport.

“I had no problem with the villa but there is something missing in a place where almost everyone you meet is a visitor – here either to rest or to make money,” says Carl, who asked that only his first name be used.

He sold a year ago, without loss, to a French couple with two teenage children taking early retirement. “I had dinner with them the other night. They loved Phuket for a few months but then boredom set in. Now they are trapped until the property market picks up significantly,” Carl says.

But any notion of Phuket as a potential price pressure cooker evaporates when one realises that behind the prime sites remains lots of untouched land and that much of the rest of the country’s 1,680 miles of coastline is available, argues Collins. “London has a scarcity of land, Phuket does not. If prices get above themselves, people will look elsewhere. That should help to keep Phuket prices honest.”

William Barnes is an FT contributor based in Bangkok

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Estate agencies

Indigo Real Estate, tel: +66 (0)76271 614, www.indigore.com
Indochine Resort and Villas, tel: +66 (0)76380 800, www.indochinephuket.com
Knight Frank Thailand, tel: +66 (0)76318 151, www.knightfrankthailand.com
Phuket One Real Estate, tel: +66 (0)76345 707, www.phuketonerealestate.com
Savills Thailand, tel: +66 (0)26360 300, www.savills.co.th