Thailand’s Luxury Forecast:
Sunny

Thailand is the first in the Mansion Global series Markets on the Verge, a spotlight on luxury destinations enticing buyers. The list of markets and background research were provided by the global real-estate consultancy Knight Frank. Mansion Global examined Phuket and Bangkok to gauge the extent of the luxury rebound in Thailand and what it means for international buyers.

PHUKET – A luxury waterfront villa on the market here grabs attention for its sleek, contemporary interior design and a price tag of about $21.5 million. The two-story, seven-bedroom villa is also notable for its location: Cape Yamu, on Phuket’s up-and-coming eastern shore.

Cape Yamu is among Thailand’s luxury spots attracting a new crop of buyers, often from abroad. The country's luxury-market rebound comes after a period of political turmoil culminating in last year’s military coup. Before that, parts of the country, particularly Phuket, had to rebuild after the devastating 2004 tsunami.

Analysts say that the high end of Thailand’s property market is proving resilient even as other markets in Asia cool off.

“If you go through all the countries (in Asia), Thailand actually stands out,” said Nicholas Holt, Asia Pacific head of research for Knight Frank. “People have seen the instability and the (Thai) market keeps shrugging off these issues, be it political or flooding.”

Tourism and prime property sales go together in Thailand, and the number of foreign tourist arrivals, led by Chinese visitors, surged 23.4% year-on-year in the first quarter of 2015 to nearly 8 million, according to the Bangkok Post. “Properties are linked to people who have gone on holiday—they are a bit more familiar with the market, they want the market,” Holt said.

In Phuket, Knight Frank says that at least 53 new oceanfront and clifftop luxury villas are expected to come on the market this year. In 2013 and 2014, there was no new supply of this type of luxury villa.

In Bangkok, supply and demand are up for luxury condominiums.

Although not traditionally synonymous with prime property, Bangkok is seeing prices rise for high-end condominiums along the routes of its over-ground train system known as the BTS. Expats like the access to public transportation to beat the city’s notorious traffic.

Record-breaking prices were recorded last year as developers rushed to launch new projects in the final quarter after a soft first half of the year. The average price for a luxury apartment in central Bangkok currently stands at $911 per square foot, according to Knight Frank. Bangkok’s prime residential prices gained 5.1% in 2014, faster than in major regional cities such as Hong Kong, Shanghai, Singapore, Kuala Lumpur and Mumbai, according to Knight Frank’s Prime Global Cities Index. Bangkok ranked 15th among 32 cities tracked.

Demand for Bangkok luxury properties comes from both foreign and Thai buyers. The share of the foreign buyers is expected to reach 30% this year, Knight Frank said.

Analysts think prices will continue to rise, due to a limited new supply of prime residences and an oversupply in the mid-to-low-level segment, which is likely to prompt developers to revise their plans for more luxury projects. “Luxury condominium projects priced higher than THB200,000 ($6,120) per square meter are 90% sold out and only around 100 units are available in the market,” property consultancy Colliers International said in a report.

Knight Frank estimates 951 luxury condominium units will be added to the market this year. Prime apartments in central Bangkok can gain 20% in price when they are completed compared with when they were sold off-plan, according to consultancy Jones Lang LaSalle. Knight Frank’s Holt, however, warned tight land supply in central Bangkok might restrict future growth. The real-estate firm Jones Lang LaSalle said it is “cautiously optimistic” on the overall property market outlook as uncertainties in Thailand’s economy remain.

The growth in Bangkok and Phuket has also stimulated property development in second-tier cities, including the beach resorts of Koh Samui and Pattaya in the south, the central coastal town of Hua Hin, as well as the cities of Chiang Mai and Chiang Rai in the north.

American businessman Howard Feldman was among those who set his eyes on the mountainous region of Chiang Mai, Thailand’s second-largest city, about 430 miles northwest of Bangkok.

Feldman first moved to Thailand 22 years ago to export homeware from Thailand to the U.S. In 1998, he bought a plot of land for $1 million in Chiang Mai and spent the next seven years building his dream house. The five-bedroom, eight-bathroom mansion nestled in the lush green mountains features a huge sandstone pool and garden. Feldman is selling it for $15 million so he can build another home in Chiang Mai.

Feldman, who is now retired, said he preferred to invest in a property in Chiang Mai over Bangkok or Phuket due to its milder tropical climate, and his belief that the city represents a more authentic Thailand.

“I was in love with Chiang Mai as I believe it is the real Thailand and the local people are wonderful and happy,” he told Mansion Global, adding, “This is home for me.”

Thailand’s low property taxes and comparatively loose rules on foreign ownership make it appealing to foreign buyers.

Thailand imposes a 2% transfer tax when properties change hands. While foreigners cannot own land, in general they can buy apartments on freehold, which provides ownership in perpetuity. Villas may be sold on a renewable 30-year leasehold basis, or through something commonly known as “protected leasehold.”

Under the “protected leasehold” arrangement, developers usually set up a company to own the piece of land where the villas are built. Foreign buyers will get a stake and maximum votes in the land holding company, thereby guaranteeing the lease renewal for their villas.