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Thailand – the investors are failing
By Nils E. Bjørnæs and Camilla Kaas Stock
Two years ago the Norwegian investor Sten Ture Jensen invested 20 million kroners in a plot on the popular vacation island of Phuket, where the plan was to build over 200 apartments, but these plans have now been put on ice. Still, he is not concerned about his investments in the Thai property market, which he believes will come back strongly.
Why did you choose to invest in Thailand?
"Since I left the media ten years ago, I have invested in small real estate projects in Norway, with two other partners. I like exotic locations, so combining a beautiful hot place with something to do seemed natural. For over a year I travelled around Phuket, which is Thailand's largest island, and looked at all the land that was for sale. I learned the hard way about pricing, location, what is important and less important. The property needs to have road access, access to water and good title deeds. In Thailand the best title deeds are called CHANOT and is based on GPS surveying. The land here is measured in RAI which equals 1600m2".
Can you tell us a bit about which are the most popular areas for potential investors in Thailand?
"Thailand has two markets. In Bangkok apartments and houses are being built for those who work in the capital. Pattaya, which is located 2 hours by car from the airport in Bangkok, has the largest leisure market. HuaHin is the Thai king's city, and here there is a series of projects, also Norwegian ones. Phuket is the exclusive part of the market. Because it is an island, but also because the location is very good.
"Two thirds of the world's population can reach Phuket by a 4-5 hour plane journey. Prices in Phuket are high, so it's not the place to buy if you want a cheap holiday home. KohSamui is also an island, but without a connecting bridge like Phuket. This island has become popular in recent years, but it is an unsafe place to invest because it is difficult to buy land with correct and authentic title deeds. There are Norwegians who have invested here also."
How do you view the prospects ahead?
"The prospects are reasonably good, but Phuket has been affected by the same economic cooling down as the rest of the world. It is impossible for foreigners to borrow money in Thailand, so the property market here is based on cash buyers. The Thai bathe has been strong against most currencies, but I think that it will fall in value, because the economy here is no better than in other parts of the world. The currencies of Thailand's neighbouring countries have fallen significantly. A fall in the currency will make it cheaper to buy, while prices for concrete, steel and building products have also fallen. This means that the prospects to deliver good projects at a reasonable price look very good.
"The quality of properties in Thailand are generally very high. And you get so much for your money when you compare quality and price. The quality is higher here than that of developments in Norway".
How is the price level in Thailand, compared with for example Spain?
"Spain is much more expensive. In Thailand it costs up to 25 000 bath pr. m2 (500 £) to build a top-quality villa with swimming pool and all possible luxury. These properties are then sold from 80-125 000 bath pr. m2. So there are good profit margins for developers, but the problem is project finance. As a rule, you have to relay on customers paying during the construction stage of the house or apartment".
What about ownership - do you get the title deeds?
"Foreigners can own 49% of an apartment with title deeds and all. 51% must be leased from the Thai company that is responsible for the development on a 30 year agreement. There is now talk of extending this to 90 years.
"You can own a villa, but the land the villa is built on has to be leased in the same way. It is pretty much the same as leashold properties in the UK, but the problem is that the lease period is very short, only 30 years. The developers usually gets around this by letting the buyer own a share of the company that owns the plot. This gives the buyers confidence that they will be able to continue to lease after the 30 year period has ended".
Do you feel it is safe to buy property in Thailand?
"You find crooks here just as you do in other places. In Pattaya, we have seen some Norwegian projects that have not been completely above board. I think that in the future is crucial that we can offer our customers a high degree of security for their investments.
"Thailand is a friendly place, but they have mixed feelings about selling bits of their country, even if they know that we can't put it in our suitcase when we go home. It probably has something to do with the fact that Thailand is the only country in Southeast Asia that has not been colonized. They are a proud people who have managed themselves".
What about your own project?
"I initially planned to build an apartment complex with 217 apartments, designed by the famous Norwegian architect Niels Torp. But when I realized that the world economy started to become fragile, I put the whole project on ice. I'm now working on a new project that will be a kind of villa-resort. The location is fantastic, a few meters from the beach near Thailand's largest resort Laguna Beach. At the moment we have chosen to call the project BANGUNA as a sort of work name. This is a combination of BANGTAO, which is where the project is, and LAGUNA, which is the famous resort.
" One of the things that make Phuket so attractive to developers and buyers, is that the infrastructure is good. Shops, restaurants, everything is close - and you can live cheap.
"I expect to have a project ready to go by the autumn, and will start the development of the first phase as soon as possible after that. I think that buyers will return in a year's time. Meanwhile, Thai Airways started direct flights to many cities, including Oslo. So this looks good as well, but it may take a longer time to develop the whole plot which is on 33 000 square meters and can accommodate around 100 villas with maximum utilization.
"Otherwise, I hope and believe that the crisis we are in will the force the new Thai government to ease some of the restrictions and give better conditions to foreigners so they can own the land their holiday home stands on. So maybe something good will come from this crisis, "he says optimistically.
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Issue 4