Income-producing properties all the rage in Phuket

Income-producing properties all the rage in Phuket

Growing tourist arrivals to Phuket, which reached 8.4 million last year, have driven a demand for change in the resort island's condominium market -- from holiday homes to income-producing properties over a period.

Back in 1993, CBRE became the sole agent for Allamanda at Laguna, Phuket's first major resort condominium development. The project offered a rental programme to buyers who rented out their units throughout the year in exchange for rental revenue and the right to use their own units for only a limited duration. Little did the market know that this scheme would be the prevailing model for Phuket's resort condominium market.

When resort property development recommenced in Phuket after the 1997 Asian financial crisis, buyers of most developments, including villas and condominiums, were foreigners looking for holiday homes. In recent years, the typical buyer of Phuket property has changed and is looking at yields.

The shift requires the vendor to have a management company that can both market and manage the property on a daily-rate basis like a hotel. Some of the best properties have achieved this by having a hotel on the same site, making effective use of condominium units as additional inventory to their hotel rooms.

Since these properties will have to compete with hotels, having a hotel management group on site will increase a buyer's confidence, especially when the property is managed by an established brand. (continued below)

Developers should also focus on properties offering sea view units because they are easier to rent out and are more attractive for end users seeking a vacation home in Phuket.

On the other end, a buyer's point of view for achieving a reasonable yield also comes down to purchasing the right property, with optimal sizing, layout, and an achievable room rate, thereby resulting in reasonable rental income.

Many developers are offering "guaranteed yields". As with anything, a guarantee is only as good as the guarantor. The ability of that party to operate the property to generate income over the long term is important, not just during the guarantee period.

It is then up to the buyer to carefully look who will generate the most income and how they can achieve it. It is, after all, only over the next couple of years when it will be clear which developers are able to provide a sustainable income stream and quality management.

Aaron Aerni Kuvanun is a senior analyst at Research and Consulting, CBRE Thailand. He can be reached at Facebook: CBREThailand LinkedIn: CBRE Thailand LINE@: CBRE Thailand Twitter: @CBREThailand Website:

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