Archie Hamble has recently written: I am currently working in South Korea , with my Thai girlfriend . We are looking at buying a house in Phuket near the beach . I am constantly hearing about price increases in Phuket . Do you think I would be better off to borrow some money and purchase now , and rent the property out , or keep saving until I have more money?. I intend to spend about 6 to 7 million Baht on a house. Also William , is there a chance of getting a real bargain if I turn up to Phuket with cash. Are there many horror stories where foreigners are just desperate to sell and get out?
In our opinion if you choose the property carefully, the time to buy in Phuket is now.
Behind this simplistic answer lie the supporting fundamentals, of increasing demand and limited supply fuelling land and built property price increases and a recent inflation of core building materials
The Phuket market is experiencing an upward trend which appears in no danger of ending anytime soon. Transaction numbers and values in 2004 so far have exceeded those for the same period in 2003 and 2003's figures were significantly better than those of 2002. Indeed, signals suggest that we are at the early stages rather than the later stages of growth , both in demand and prices. More buyers seeking the same type of dream property with an advantaged location and view will cause a rise in land prices When widely available financing becomes available, expect the rate of price increase to exceed that currently occurring. Thus, if you want to be close to the beach, buying now before better locations become ever more scarce and costly makes sense.
Firesales as you call them are rare, and you have to be ready to move quickly to take advantage of any that come by. Thus, if you are to adopt this strategy, prepare your ownership structure and finances carefully in advance for speedy action. At present this is a cash market where buyers are largely capable of carrying their assets and seldom heavily discount their properties to achieve sales, preferring to wait until a buyer turns up and perhaps rent in the interim. Because of this one seldom finds the sort of bargains we all hope for. Holding on and waiting for the market to deliver a buyer rather than discounting, has been a relatively common and relatively successful owner practice so far, although supply side improvements with the significant arrival of increasingly large numbers of new stock in secondary locations may factor in to change this dynamic. Having said this, there may later be more opportunities for bargain hunters scooping up 'firesales' from those unfortunate enough to have over extended themselves once locally available financing for foreigners becomes more commonly available.
Choose your location especially carefully if you hope to rely on rental income to service your overseas debt Paying more for a premium location where rental yields are likely to be more constant would be sensible. However, a buyer who is paying for their property by relying on yields is certainly taking a risk. Some of the properties we market are virtually 'no brainers' when it comes to predicting above average yields. Likewise a savvy realtor will be able to assist you in avoiding those where yields fit more the category of a developers flight of fancy rather than plausibly achievable. Beware of guaranteed returns. Question whether the sales price been manipulated to accommodate these and what happens once or if this guarantee expires.
Phuket has not escaped the impact of buildings materials increases over the last 18 months. One developer recently told me a take of three identical homes he has built. The first begun in early 2003 cost 10m to build. A more or less similar home begun seven months ago is on target to cost 13m baht. To contract with suppliers for the same house now would see a cost of 15m Baht. Even allowing for some simplification on these figures, the point is clear. If you are holding out on buying into this market, you will have to contend with higher land prices and higher building costs.
Buying off plan where payment schedules allow you to spread out the cost of purchase may appeal. Some developers will tailor payment palns to your needs. You will also be able to lock in a price which all things being equal will usually rise during the construction perild, I am assuming that you want this property to be a holiday home. If you are convinced Phuket is for you then an alternative strategy would be to search for a plot of land where the upside looks good and buy into this ready to sell it and later purchase an off plan or built property of your choice. In the meantime continue renting while you come on vacation. On balance, there is probably more likelihood that capital gains on land alone should be better than in a small finished home.
I know I have mentioned escalating building costs but you must offset depreciation and maintenance costs. Following this strategy would allow you to only extend yourselves to a certain degree but still benefit from the upwards land price trend.