The allure of resort properties

According to Bank of Thailand statistics, tourism contributed 9 to the country’s GDP in 2005 and international tourist arrivals reached 13.4 million in 2006. Historically, tourists stayed in hotel accommodation, but following a global trend there is growing demand for villas and condominiums - particularly for long-stay tourists. There is also a growing demand from tourists to own their own resort properties in Thailand.

“Resort property development is an extension of the tourist industry and is an important element in attracting high income short and long-term stay tourists,” says David Simister, chairman of CB Richard Ellis Thailand.

Spain is a good example of a country that has leveraged its popularity as a tourist destination to become the most favoured location for second homes in Europe.  Spain attracted 56 million tourists in 2005.

The UK Government’s Survey of English Housing reports that 231,000 British households own property overseas with 27 of this number owning a property in Spain. Ownership of a second home is also popular in many other countries in Northern Europe and Scandinavia with Spain being the most popular country to purchase an overseas property.

But costs in Europe are increasing both for property and general living expenses while at the same time the quality of living is increasing in Thailand.

Everyone can fly long haul, flying has become more and more affordable and distance is no longer a barrier. The emergence of low cost carriers within Asia has grown dramatically and it is feasible to fly from Hong Kong or Singapore to Phuket for the weekend.  It is also feasible for someone to live in Europe and fly to Thailand several times a year to use their holiday home.

Although individuals had constructed holiday homes in Phuket for a number of years, the first significant development targeting foreign purchasers was the Allamanda condominium launched in Bang Tao Bay Phuket in 1991.  The majority of purchasers were based in Hong Kong and Singapore.

The financial crash in 1997 halted development in resorts but activity resumed in 2000 and has been growing rapidly ever since.

Simister believes that there are significant benefits to local economies from second home developments. Owners and people who rent properties stay longer and visit more frequently.  They are significant users of services including retailers, maintenance companies and other locally based businesses. Local authorities benefit from property tax charged on rentals.

Meanwhile, ownership of property reduces volatility in visitor arrivals as there is an incentive for owners to use their own property rather than choose an alternative destination.

But Simister says there are challenges in the growth of resort property development - especially protecting the environment so that a destination remains attractive without restrictions that are so onerous that development is not feasible.

In terms of the Thai resort property market, there are obstacles in the way of its growth, including tight restrictions on foreign ownership and a prohibition on lending to foreign property purchasers.
Currently, under Thai Law foreigners are allowed to buy up to 49 in area terms of a condominium.
Foreigners are not allowed to own land and the maximum length of lease is 30 years, although developers can offer options to renew extending the lease term to 90 years.

In many resort areas there is not enough local demand for high-end resort condominium units and so developers are unable to sell the 51 Thai quota of the building. The main option open to the developers is to offer 30 year leases, plus options to renew, on the Thai quota condominium units.

Thirty year leases are not as attractive as freehold titles or longer term leases, says CBRE. They are relatively illiquid because of their short length and so there is a limited secondary market in resales.
Currently foreign condominium purchasers are prohibited from borrowing money locally to purchase a condominium as the foreign ownership regulations state that all funds used to purchase a condominium must come from overseas as foreign currency.

In the past many other countries in Asia were equally restrictive but now other countries are opening up their property markets and although Thailand has had a head start and has a natural advantage in attracting overseas property buyers this position will be eroded as other countries offer more attractive packages.

Malaysia has limited regulations on foreign ownership of property. Foreign ownership is regulated by the Foreign Investment Committee (FIC).  Any acquisition of property by a foreign interest requires the approval of the FIC however this is a formality and rarely is approval withheld. The only restriction is that the property should be valued at more than 150,000 Malaysian Ringgit (the equivalent to Bt1.5 million).  Foreigners are allowed to borrow locally to fund property purchases.
Malaysia is also promoting a special programme under “Malaysia My Second Home.”  The Malaysian government grants a 10 year visa to citizens of all countries providing they open a fixed deposit at a Malaysian bank in the amount 300,000 Malaysian Ringgit (about Bt3 million) and the right to buy up to two houses priced at more than 150,000 Malaysian Ringgit each (Bt1.5 million baht).

Vietnam offers overseas buyers 50 year leases and China offers foreigners a maximum leasehold period of 70 years for land intended for residential use.  

In Singapore there is no restriction on foreigners owning freehold condominiums but the only freehold landed property that is available for foreigners is on Sentosa Island.  

CBRE says this is why the Thai government needs to change its stance, or it risks losing its advantage over other regional markets.

“Thai government policy has been to focus growth in tourism on quality not just quantity with the objective of increasing the amount spent by individual tourists and extending the length of stay,” says the company. “The sale of resort property to tourists will achieve both those goals. Resort property sales will be a key catalyst in upgrading the type of long stay tourist from back packer to billionaire.”