Selecting the Right Property
Ron, a Canadian, recently arrived in Phuket, asked "I am currently looking to purchase one or other of two properties for investment and rental returns. They are both apartments with very good sea views in upscale managed resort developments. One of the properties has direct ocean frontage. However, it is significantly older than the other property which is also perhaps in need of refurbishment. What would the wise investor do? Buy the new less prime apartment or go for the primer unit even though it has a significantly higher price per Sq.m. and is smaller and less modern"?
Without having the advantage of knowing which properties you are looking at or their relative prices it is difficult to answer that question specifically. I am however pleased to try to do so in general terms. Since you are interested in both rental returns and capital appreciation, I will need to address each of those in turn.
In regard rental returns of the units, you would be best advised to try to obtain audited figures for past rental performance, the older unit will naturally have a longer history, and if it has been well managed and continues to be well managed, will give you the best indication of future performance. With the new unit, which I would expect to be performing less well than the more established unit you will have to make more of an educated guess as to future performance - which should have scope to improve as the property and rental management fine tunes their operations and the property becomes better known in the market. In regard to the locational differences, the direct waterfront unit is always likely to be booked before the other units giving these units an inherent advantage (particularly in periods when occupancy may be low) - though this will also be born out on the relative price of the unit, so may not necessarily improve yield in good years.
In regard to the capital valuation, while it is clear that state of repair and renovation clearly has an impact on the current valuation, over the long term it is going to be the location rather than the state of repair that is going to determine long term capital growth. Provided that the building structure is inherently sound, repairs and renovations - which are usually modest in cost relative to overall value of waterfront or near water front managed properties - are easily performed - and will continue to be required over the years on either unit. As such your long term interest will be better selecting the unit on the location rather that current state of repair.
Direct beach frontage property is not only limited by the physical length of Phuket's shore line (which has very few remaining and increasingly expensive undeveloped titled plots), but also by planning codes that prohibit new construction within 20 meters of the beach front and severely limit it within 50 meters of the shoreline. As such properties that fall in this restricted area have a very measured finite supply. Prices have thus been very positive in these areas and can only continue in that vein as demand outstrips supply. As with the rentals, in times of market slowdown, where transaction volume falls, it will always be the primest located units that are the most sought after or easiest to move.
So in answer to your question, assuming both the units that you are considering are correctly priced today relative to their size location and current state of repair, my inclination would be to go for the best located unit.