Property consortium to tackle ‘misperceptions’ in Hong Kong
by Alaisder Forbes for the Phuket Gazette
The Phuket Select consortium of property developers prepares to dispense some ‘misperceptions’ about the Phuket property market at their property expo in Hong Kong next month.
CHERNG TALAY: A loose consortium of property developers with solid track records of completing projects in Phuket met recently at the Laguna Beach Resort to hammer out details of a property show to be held in Hong Kong next month.
Thanks to the short flight time between there and Phuket, Hong Kong has long been one of the prime markets for sales of high-end holiday homes on the island. Developers will be hoping for good sales prospects, if not actual signatures on contracts. The consortium will be working to address what they regard as “misperceptions”, particularly in the Hong Kong market, about Phuket and about Thailand in general.
One of these misperceptions was an opinion voiced in a speech by a senior Hong Kong banker that the Phuket property market is a bubble set to burst. Hong Kong is particularly sensitive to bubbles in property markets. In the mid-1990s, for example, the then-British government moved to head off a property bubble by reducing permitted mortgages from 95% of the purchase price to 70%.
As a result, demand fell, dragging down prices. Many Hong Kongers who had already borrowed large amounts to speculate in property were lumbered with large mortgages on property that was now worth much less than they had borrowed. Had the government not stepped in, however, there was a considerable probability that prices would have risen much higher and the bubble would have burst with much more drastic results.
The members of Phuket Select argue that bubbles occur only when large amounts of credit are involved. This is most unlikely to happen in Phuket, they say, because the Phuket market is driven by cash, not mortgages. In a recent article in the Hong Kong magazine Square Foot, Martin Phillips, managing partner of Engel & Volkers Thailand, was quoted as saying, “It is very difficult for foreigners to obtain financing inside Thailand to buy property and, in our experience, the majority of buyers do not take up any form of loan.
“The positive result of this is that it is difficult to create a speculative bubble in the Phuket market. Bubbles may occur when financing is easy to obtain and overall demand is driven by speculators.
“Because cash is used to purchase a significant amount of property, this scenario is not likely to happen [in Phuket].”
Another factor slowing the Phuket property market has been buyer nervousness in the wake of the coup in September last year. This is likely to ease, however, following the recent national vote in favor of the new constitution, clearing the way for a national election in December this year.
David Simister, chairman of CB Richard Ellis (Thailand), was recently quoted (also in Square Foot) as saying, “I’ve seen more than one coup – I think it’s four or five if I add them up… Against all of that, the picture has been [one of] rising demand in terms of Thai property and prices – it’s [still] a fraction of the cost of the Caribbean and Hawaii. “The market will absorb and get on with it.” Other potential buyers of Phuket property have been made a little anxious by the government considering further tightening of existing rules in an effort to prevent foreigners not only from owning land, but also from controlling land they have paid for.
However, Mr Simister pointed out, “The first thing to note is [that] it’s a proposal – very often in Thailand things are proposed and time marches on and nothing happens.”
Speculation is focused on whether the winners of the December election – at this stage most likely the Democrat Party – will take up this particular warcry. In any case, many developers in Phuket now sell properties on 30-year leases and few report much sales resistance. What is slowing the Phuket property market to some extent – at least as it relates to Hong Kong – is the cost of cash. With the Hong Kong dollar still pegged to the falling US dollar, property priced in baht has been becoming steadily more expensive.
It seems likely that Phuket’s other two main property sales markets, Britain and Singapore, whose currencies are not dollarlinked, will assume greater importance.
On the other hand, with the US dollar looking likely to go on falling, making the baht yet more expensive, some would-be buyers from Hong Kong may decide to jump into Phuket property now rather than wait.