With high season now well under way, many visitors to Phuket over the next few months will also be property buyers.
There are many different considerations for buyers when making a purchase: one of the first decisions to be made is whether to buy an Off-Plan property or a completed one. Both options come with benefits and draw backs and a lot will depend on the buyer's risk preference.
Purchasing a property Off-Plan brings the benefit of being able to choose the best units. By the time a condo or villa development is completed it is certain that the best available units will have already been sold – getting in early gives buyers greater choice.
When buying a condo in Phuket, the highest demand in resort locations is for Foreign Freehold units. Under Thailand’s Condominium Act 2008, only 49% of a condo can be owned freehold by foreigners. Therefore delaying a purchase until the condo is completed will almost certainly mean missing out on the Foreign Freehold quota.
One major reason for buying Off-Plan is to generate a larger capital gain through the asset's appreciation once the development is completed. This is very attractive to property investors and speculators; as we have mentioned before in previous articles, capital appreciation in Phuket when buying during the pre-sale period is typically 30 per cent and 5 – 10 per cent when buying during the construction phase.
Speculators and investors look to buy in to a new project as early as possible and take advantage of pre-launch prices. During this period the developer will still be in the process of obtaining building permits, confirming plans, and getting their EIA (Environmental Impact Assessment). Developers want to start generating income through sales as early as possible so will offers buyers pre-launch incentives, usually in the form of large price discounts, guaranteed rental returns, finance options, and more. At this point, buyers will get the lowest prices and achieve the largest capital gains upon completion.
Another advantage of buying Off-Plan is that payments for the property can be spread out over the construction period. For condominiums, this can be up to two years and for villas 10 - 18 months.
Buying Off-Plan can give the buyer greater input into the design of their property, particularly villa properties where structural changes to the property such as changing the floor plan or adding additional rooms can be made. Sometimes this is also possible with condos, as buyers can purchase two adjoining units and create one larger unit. Also, buyers can make decisions on décor, furnishings, bathrooms, kitchens, and appliances at this early stage.
Obviously buying Off-Plan is not all upside, otherwise everyone would be doing it, and the benefits have to be weighed against the potential downsides and benefits of buying a completed property.
A major factor when deciding whether or not buying Off-Plan is the right choice for you is the risk factor. There is always a risk that the project might be delayed or not complete at all which is not a factor if you are purchasing a completed property; buying Off-Plan is not for the risk-averse property buyer.
Unless the developer has a show unit or an earlier completed development, buyers will be unsure of the finished quality that they will get upon completion. When purchasing a completed property, buyers can see, touch and feel the finished product so they know exactly what they are buying.
For property investors who are buying to generate an income through rental returns, Off-Plan properties cannot start producing a rental income until completion. In the case of a condominium, this could be two years or more. For this person, purchasing a completed property would be more suitable as it can start to produce income immediately. As mentioned in previous articles, Phuket has historically produced very attractive rental returns compared to other property markets globally.
If a development is completed but not sold out, developers will often offer promotions on completed properties such as free furniture package and free transfer fees to try and get the remaining units sold. This can be a good option for buyers; although they will not receive the same capital gain in asset value as buying Off-Plan, the promotions can be very attractive.
It has been well documented in our earlier articles this year and in our 2014 market report that the resale market in Phuket currently offers better value through lower prices than new developments. There are numerous reasons for this: the appreciation of the Baht, appreciation in real estate values, increase in building materials and costs and so on, all of which mean that sellers who bought five years ago or more are in a position that they can offer a substantial discount, thereby undercutting everyone else in the market, and still walk away with a profit. This has resulted in an increase in activity in the resale market, with buyers and investors taking advantage of this current opportunity.
One of the downsides with resale properties is that they will usually require some redecorating or renovation work to get the property in line with the buyer’s tastes. Although a lot of redecorating and renovation work can be done for a relatively low cost in Thailand, especially compared to Europe or Australia for example, it still requires time and effort on the buyer’s behalf.
Normally when buying a resale property, you would miss out on much of the capital appreciation that could be generated by buying Off-Plan. However, such is the case in the resale market right now that there are some incredible offers which will generate an equal capital gain as buying Off-Plan once the market in Phuket has recovered.
Currently, the property market in Phuket remains slow for several reason: no one demographic has come in to take up the slack left by Russian buyers, the world economy still remains weak, the Baht is still strong against many currencies such as the Euro and UK pound, and Thailand’s political situation is misunderstood by many would-be buyers who are not familiar with it. However, every cloud has a silver lining and the upshot of this is that there are some fantastic offers available to buyers both in the resale market and from developers.
For those who sit on the sidelines forever waiting for the Baht to weaken or for the next elections, they are likely to be too late to the party and miss the bottom of the market, which will already be recovering. Now is a great time to be a property buyer in Phuket.
For more information about this article contact Kevin Hodges, the North Branch and Investments Manager for Siam Real Estate (SRE) in Phuket and author of SRE’s Phuket Residential Market Research Report. He has more than seven years’ experience in Phuket’s real estate market.