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Changing trends in two major contributors to Phuket economy

Posted On 22/04/2016

Phuket-beachTOURISM and real estate are and have always been the key contributors to Phuket’s economy. Today, they remain the heartbeat of the island, but trends have shifted in terms of tourist profile and real-estate demand. Last year, arrivals to Phuket totalled 6.24 million, a record figure. Of this number, around 3.4 million were direct foreign arrivals, up 8.7 per cent year on year, and some 2.9 million were domestic arrivals (including transits via Bangkok), up 11.7 per cent. Tourist arrivals have consistently grown despite Thailand's political situation and the Erawan Shrine bombing in Bangkok last year. A notable change is the increase in the prominence of Chinese tourists. Last year, Chinese tourists in Phuket reached 1.3 million, significant growth of 34.8 per cent year on year. This growth has helped offset the decline in Russian tourists, and we expect this to continue further during 2016. The top five feeder tourist markets are China, Russia, Australia, South Korea and Malaysia. Another significant trend is an expansion of the tourist base for Phuket underpinned by a growing number of affordable accommodations opening up the market to a larger group of visitors. The Phuket airport expansion will also facilitate further growth across all tourist segments. The Bt5-billion expansion includes the new terminal, 10 additional aircraft bays and a five-storey car park. Once completed in June, the long-overdue expansion will double the airport's annual passenger capacity from 6 million to 12.5 million. The real-estate sector has also gone through evolving trends. Amid a weak global economic outlook, there is a clear shift towards investment properties where guaranteed yield offerings with rental management by a professional operator have become the market norm. Investment products with a guaranteed yield and a limited owner's usage are products that match the current market demand. Buyers are looking for properties they can profit from, as well as enjoy the lifestyle aspects of owning a resort-home. The concept of investment properties has been applied across all market segments, from high-end villas to entry-level condominiums. The factor in making this an attractive buy is the presence of a professional management company, whether by a five-star branded operator or a less well-known operator. The key is in providing a fully serviced property that minimises ownership hassle and a rental management programme that ensures the owner's income is maximised. The key difference between high-end villas and entry-level condominiums is the flexibility in usage. In entry-level condominiums, buyers are likely to be more accepting of restricted property usage terms and conditions and black-out dates, whereas high-end buyers typically require more flexibility on when they can use their property. There continues to be a niche portion of the market that looks for ultra-luxury resort villas and is attracted by what Phuket has to offer - the blend of quality beaches, yachting, golfing, food and entertainment. This segment of the market was originally the key driver of the resort-home market prior to 2008. Top-end villas such as Andara were launched in the US$3 million-to-$5 million (Bt104 million to Bt174 million) range in 2005. Today, resale prices have soared in excess of $8 million. New launches for similar top-end properties that are sea-view, fully serviced with five-star hotel management are also priced in excess of $8 million. The key rationale behind soaring prices of prime luxury villas is the price rise in sea-view and beachfront land plots. Prime development plots are rarely available and, if so, asking prices for absolute beachfront land on Phuket's West Coast are in excess of Bt30 million per rai (Bt187 million per hectare). This makes luxury villas a very niche market accessible only by high-net-worth individuals. The shift towards more affordable investment products therefore makes financial sense and is more in line with current demand. Phuket will continue to grow off the base of a strong tourism market. Historically, repeat tourists have been the key source of resort-property buyers and will continue to be so, but what the market wants has shifted and developers must be in tune to the market demand.   logo_v2