Reduced to ruble: Russia’s economic woes hit Pattaya
With their currency in a free-fall and showing no signs of recovery, local businesses that rely heavily on tourism are starting to suffer
After completing their mandatory sightseeing tour in Pattaya, Russian couple Sergey, 36, and his girlfriend Tatyana, 34, were eager to head to a major shopping mall for some bargains.
Beached: Some Russian tourists have been left high and dry in Pattaya as their currency has devalued and their buying power on everything from condominiums to iPhones has dropped. (Photo by Tawatchai Khemgumnerd)
The pair from Omsk, in southwestern Siberia, had bought a package holiday a year in advance and hoped to snap up a good deal on an iPhone for Tatyana and an iPad for Sergey.
“We can’t afford it any more,” Sergey complained. “Our friends who were here before told us that iPhones are cheaper. But now the ruble is weak, it’s twice as expensive as what I’d hoped to pay.”
Like many other Russians travelling to Thailand, the couple are the victims of the falling ruble, which depreciated 46% against the US dollar in 2014. This year it has already lost more than 10% against the dollar, and is the third-worst performing currency tracked by Bloomberg after the Moldovan leu and the Belarusian ruble.
With Russians ranking third among foreign visitors to Thailand, behind Chinese and Malaysians, their falling spending power is already having a major impact on the tourism industry.
Last year Russian tourist numbers to Pattaya dropped 20% to 857,627, according to Association of Thai Travel Agents statistics released last week. Also being hit hard is the real estate market — particularly in Pattaya — and local business interests from restaurants, travel agents and media outlets.
Mixed Messages: Mark Bowling, the associate director for sales and leasing at the Pattaya office of Colliers International.
‘NOT AT THE BOTTOM YET’
Victor Kriventsov, the deputy honorary consul of the Russian Federation for Chon Buri and Rayong provinces, told Spectrum there had been only a small decrease in Russian tourist numbers.
Last year, there were 1.7 million Russian visitors to Thailand, half of whom went to Pattaya, he said.
“From when the crisis started until the end of last year, the number of tourists remained the same, maybe a little bit less,” Mr Kriventsov said.
The devaluation of the ruble had seen it drop from near-parity with the baht six months ago to a value of less than 50 satang today, effectively making it twice as expensive for Russians to come here.
Mr Kriventsov told Spectrum that no figures were available yet to show exactly how far tourist numbers had fallen, as Russia’s economic crisis had only begun to grow serious in November.
“Whatever statistics regarding Russian tourist numbers that are available would not give you the actual picture because most of the New Year period packages were bought before the crisis occurred,” Mr Kriventsov said.
The consul said the true extent of the decline in tourist numbers would not be clear until after February.
Sanpetch Suppabawonsathien, president of the Thai Hotels Association, said in December that the Russian tourist market in Pattaya was falling for the first time in 12 years.
“Hotel room reservations from the Russian market have already dropped by 70% for this high season,” he said.
“With the impact from the weak ruble, the number of Russian visitors to Pattaya should drop by more than 50%.”
Andrey Snetkov, the marketing director of TEZ tour, a Russia-based tour operator with an office in Pattaya, predicts the tourism industry will not bear the full impact from the Russian economic crisis until later this year.
“At the beginning of 2014 it was forecast for a 30% market drop for the winter season 2014-2015, but the real result was almost 70% down from last year’s figures,” he said, referring to bookings made through his company.
“But it is not at the bottom yet. I predict that the real picture of Thailand’s inbound tourism from the Commonwealth of Independent States will be seen from mid-March onwards.”
Sisdivachr Cheewarattanaporn, president of the Association of Thai Travel Agents (ATTA), also said at the end of last year that the association was worried and closely monitoring the economic crisis in Russia.
Bookings from Russians have remained sluggish throughout the high season.
Russian arrivals to Thailand through ATTA’s member tour agents are estimated to average about 80,000 a month but negative factors, especially the weak ruble, are tipped to lower that number to only 50,000.
Mr Sisdivachr had predicted arrivals from Russia to Thailand through its member tour agents would drop by at least 30% in 2014. As of Nov 30, arrivals through ATTA members had declined by 26% to 410,325.
In the first 10 months of last year, total arrivals from Russia to Thailand decreased by only 0.03% to 1.262 million visitors. The negative trend of the Russian tourist market started in May and sharply worsened in October as the economic crisis deepened.
The Department of Tourism recently revealed that arrivals from Russia continued to drop in November, falling by 21% to 181,888 visitors.
Full speed ahead: Jomtien beach, near Patttaya, has many new condos under construction. Above, the two sides of the street running over Pratamank hill in Pattaya are filled with adverting signs for condos.
JUST A CATALYST
Many locals and business owners in Pattaya that rely on tourism say they have noticed a sharp drop in the number of Russian travellers.
Mr Snetkov told Spectrum that the situation is affecting not only Russians, but all tourists from the Commonwealth of Independent States, which comprises Russia and eight former Soviet republics.
“We are not really able to split Pattaya from the rest of the world, and what is happening here simply reflects the overall situation of the CIS tourism business,” Mr Snetkov explained.
He said the CIS tourism market had been overheated for the past three years, and that supply had been exceeding demand even before Russia’s currency collapse.
“We were able to see the signs of market stagnation,” Mr Snetkov said. “What happened with the Russian currency and economy simply serves as a catalyst for the tourism market to collapse much faster.”
The biggest drop has been seen in long-haul destinations popular with Russian travellers, such as Cuba, the Dominican Republic, Mexico and Thailand. The price of air tickets is high, sometimes fixed in US dollars, and the weak ruble has compounded the expense.
Mr Snetkov said that for the past two to three years, bank loans for travelling, which were once popular, are no longer easily available, and even if they are the interest rates are often high.
Many travellers have chosen domestic routes in Russia for the holidays, where the prices are in rubles and thus immune to currency fluctuation.
Steady as she goes: Victor Kriventsov, the deputy honorary consul of the Russian Federation for Chon Buri and Rayong provinces, thinks the fall in tourists is overstated.
SURVIVAL OF THE SMARTEST
Since Mikhail Ilyin opened his Russian restaurant, 8 Horseshoe Tavern, in south Pattaya in 2005, he said he has never served less than 100 customers per day.
But in August last year, around the time the ruble began to dip, he started to notice that number falling.
“We used to have around 100 customers coming to the restaurant per day, but now there are less than 10 per day,” Mr Ilyin said.
Realising the situation is unlikely to improve in the near future, he called his 10 staff members in recently for a meeting and asked them what they wanted to do.
“To be able to survive, we have to either close down the restaurant or work more,” Mr Ilyin told his staff. Everyone agreed to work harder to keep the business going, and the restaurant now opens three hours earlier with a breakfast service in an effort to boost revenue.
“I hope this is just a temporary problem,” Mr Ilyin said.
Several other Russian restaurants in Pattaya have closed down in recent months, unable to cope with rising rents and dwindling customers.
One restaurant in the middle of Pattaya town has taken a different approach, planning to move away from the Russian cuisine it offers until the tourism situation picks up.
However, a stall selling Russian food on the basement floor of Central Festival Pattaya Beach is doing better than ever. A staff member said they are still making significant daily sales since the mall is a stopping point for many Russian tour groups.
“Sometimes there are at least 50 people waiting in the queue to buy food,” the staff member said.
Vacant: Many rooms at a condo in the Jomtien area have for sale or for rent signs fixed on their balconies. Many Russians who bought properties are now struggling to pay for them.
HIGHS AND LOWS
While the tourism industry and restaurants are reporting a definite downturn, the situation for the media industry remains calm, according to Niels Colov, founder and chairman for the board of directors for Pattaya People Media Group.
Pattaya People is the largest media group in the town, and operates a 24-hour Russian TV station, Russian-language radio station, and local news website in Russian, English and Thai languages.
“When you see the decline of a currency, what part of the market does it hurt first? The low income people. They are not contributing that much to the economy to begin with,” Mr Colov explained.
“The high income people who are not affected are still coming here and purchasing condominiums. The properties that are aiming for the higher market are still doing well since they still place advertisements with us.”
Spectrum also contacted the Pattaya-only Russian-language real estate magazine called Real Estate Thailand to ask about the impact of the economic crisis. Irena De Ribas, the magazine’s CEO and founder, also confirmed the effect on her publication had been minimal.
“Some people want to cut their advertising budgets, but my magazine is mostly targeting the premium market,” Ms Ribas explained.
“Some of my clients told me they are cutting their budgets for English magazines, while they are still keeping the advertising for Russian-language media.
“I think the situation will affect the lower end of the market, but rich people are still coming to Pattaya and buying property here since Pattaya is still much cheaper than things back in Russia,” she added.
Ms Ribas did not believe there would be any immediate effect on the media industry, because “no matter how bad the economic situation get people would continue looking for Pattaya property”.
“Maybe we will see more of an impact in a couple of months' time, when summer comes and we enter the tourism low season, but for the moment there is no impact on us,” she said.
Staying away: Walking Street near the beachfront in Pattaya is a leading attraction, but the drop in Russian tourist numbers will be a blow for businesses.
While tourism remains the primary draw for Russians coming to Pattaya, the property market remains a major factor as Russians seek a permanent place to escape the depths of winter.
Many of the wealthier Russians who visit frequently don’t like to pay for a hotel room. Instead, they want to stay in their own condominium, and make some money by renting it out when they are away.
The Pattaya Property Guide reported in its January issue that in 2013, the seaside town accounted for a massive 19% of all Thai real estate sales. About 65% of those Pattaya sales were to Russian nationals.
But after the economic crisis, there are reports that some developers are either suspending projects or cancelling them completely.
The Property Guide report mentioned one of the city’s leading developers had cancelled a major condominium because the majority of units sold in the project were to Russian buyers who were now struggling to pay for them.
Now, there are more than 7,500 condominium projects in Pattaya, with more than 30,000 units available in Jomtien alone. Approximately 60% of them are still under construction, though many are sold off the plan.
“I think the Pattaya property market is a bit too overheated. There are too many projects coming up so fast like a mushroom. The resale value of properties will be as equal or less, because there are always new and better ones coming up,” Mr Kriventsov, the deputy honorary consul, said.
Mark Bowling, associate director for sales and leasing at Colliers International’s Pattaya office, told Spectrum he has received mixed messages from developers about their reliance on the Russian market.
“One of them I know personally just recently cancelled a project because they sold only 40% of the building, and 90% of the buyers were Russian,” Mr Bowling said. “For the last three months, they hadn’t paid for their monthly instalment plans. So the developer cancelled the project and gave the money back to all the buyers. He said he’d rather lose $2 million now than $200 million later.”
Mr Bowling explained that most of the Russian buyers purchased condominiums here as an investment, and buyers at the lower end of the market were affected much more than those at the upper end.
“What is happening now is that a lot of Russians who already bought their unit want to resell, and often they resell them cheaper [than the original purchase price] because they can take the money back to Russia and double it on the exchange rate,” Mr Bowling explained.
He said there are a lot of units for sale with prices even lower than what the developers were offering them for. In some ways, he said, it is a good opportunity for investors.
Nigel Cornick, CEO of Kingdom Property Co Ltd, said the situation was nothing new to Pattaya, recalling the effects of the 2008 global financial crisis which ravaged the property and investment market. The difference, he said, was that in 2008 there was minimal effect on the tourism industry.
“This time it affects both the real estate side and the tourism side,” he said. “Most of the Russians who bought condos over the past two years are struggling to pay for them. It has become 50% more expensive in ruble terms.”
As required by law, each condominium project must have a minimum of 51% Thai owners, while up to 49% can be foreign owned.
“In Pattaya, in the lower end condo projects, there are at least 60-80% Russian owners within that quota of 49% foreign ownership,” Irina Breslavtsva, vice-president of marketing for Kingdom Property, said.
CHINESE ARE THE NEW RUSSIANS
Statistics compiled by the Ministry of Tourism and Sport revealed that the majority of tourists who came to visit Thailand in October last year were Chinese, at 501,403. In second place were Malaysian tourists with 262,803, while Russians tourists came in third at 115,197.
The statistics also revealed that since 2002, the growth in Chinese tourists has outpaced that of their Russian counterparts.
Mr Cornick told Spectrum that Chinese investors have become big players in real estate markets across the globe, and Thailand will be no different.
“What we have seen last year was a large number of Chinese developers setting up joint ventures here in Thailand to develop condominiums. These developers have a large network of potential buyers,” he said.
“Chinese buyers will tend to go to those projects which have a Chinese influence. The large quantity of real estate will be sold for Chinese by Chinese through their joint venture partners.”
Mr Bowling said there are already a lot more potential Chinese investors who are interested in the Pattaya property market. However, the Chinese visitors are often travelling in large groups, with their itineraries dictated by tour guides.
“It is pretty much like Russian visitors 10 years ago. They were following the flag the same way the Chinese tourists are doing now, but once they become more independent, they will take over the Russian market,” he said.
WE WILL SURVIVE
The Russian financial crisis seems likely to take full effect this year, and many people are set to feel the consequences. Vladimir Ryzhkov, a prominent Russian politician and professor at the National Research University Higher School of Economy, has warned Russians to “get used to being at least twice as poor in 2015 as you were before the annexation of Crimea”.
Even though 2015 might not be the greatest year for the Russian economy, those who stand to bear the brunt of the impact in Pattaya are already preparing themselves.
Mr Kriventsov thinks the situation will be back to normal very soon.
“Personally, I don’t think the crisis will last that long. Either it will get back to normal or the Russian government will index the incomes of all people and then they would be able to travel again. That would be no more than a few months. It is not just a wishful thinking. I really do think so,” he said.
“However, what I hope is that within a few months, the situation will improve because in Russia we have a lot of natural resources. Also within the last two years, we have established a very good system of coping with foreign currency fluctuations.”
Mr Snetkov from TEZ tour told Spectrum that during the past year a lot of small and mid-sized agencies in Russia have closed their doors. Some are trying to survive by shifting their focus to the domestic travel market.
“It is in the nature of CIS citizens to want to swap the dull weather and slippery footpaths during wintertime to bright and sandy beaches and perfect seafood. People are not ready to get rid of that,” he said.
Mr Colov from Pattaya People Media believed Pattaya was unlikely to ever see the same amount of Russian tourists as before. His advice was for business owners to focus on the upper end of the market.
“My advice is not to focus too much on the low end when you are talking about the Russian market. Try to expose yourself to the high end, that will probably compensate for the mass buyers or the low-end condo buyers. One rich Russian can probably spend as much as 100 low-end Russians,” he said.
Mr Cornick from Kingdom Property suggested people not forget about the Thai market, since they will always be the potential buyers.
“They can compensate for the loss of the business from Russian buyers. Thais still have strong purchasing power,” he said. n