FBA changes could deflate property prices in Phuket

Leasehold demand remains strong

Changes to the Foreign Business Act (FBA) might cause a crisis in property prices in Phuket due to the limited adjustment time, according to David Simister, chairman of the property consultancy CB Richard Ellis (Thailand).

Nominee property firms, he said, needed to seek Thai partners before the bill becomes law, after which they would have just one year to adjust.

''There should be an extension period for nominee firms to make an adjustment, or an extension of the leasehold contract period from 30 years to 90 years,'' he suggested.

Current law allows foreigners to lease land for 30 years with two 30-year renewals possible, subject to consent from the land owner.

If foreign-controlled companies that have used Thai nominees to exploit loopholes in the law cannot find Thai partners to make genuine financial investments, property prices in Phuket might fall dramatically, Mr Simister said.

Since the proposed changes to the FBA were announced late last year, buyers have become much more concerned about the legal status of developments, he said.

Even so, demand for Phuket property remained strong, but it shifted to leasehold instead of freehold property, he said. Rather than buying villas, foreigners preferred condominiums as they could have ownership, he added.

''We've seen continuous demand for Phuket property after receiving good feedback from our exhibition of a Phuket property project in Hong Kong last week,'' said Mr Simister, adding that the property market in Phuket today was based on real and not speculative demand.

Meanwhile, capital restrictions imposed on foreigners have not affected foreign buyers of Phuket property since they normally paid cash, he said. Also, Phuket property prices are not as high as those in other destinations.

The Phuket residential market remains strong due to rising global demand, continuous improvements of facilities and infrastructure and high potential for capital appreciation and rental income.

Mr Simister said the newly launched residential projects in Phuket were almost all leasehold. CBRE is managing sales of Andarina, five luxury leasehold villas with prices starting at 27.5 million baht.

Surapong Karnsuwan, president of Waterscape Group, which is developing Andarina, said the project would not be affected by the FBA as the 200-million-baht site would be leasehold and the developer was Thai-owned.

''Our project will be an alternative for foreign buyers seeking a luxury villa in Phuket, while Thai buyers can also buy it as freehold at the same price as leasehold,'' said Mr Surapong, who is also an investor in the capital market.

Waterscape Group is a property firm that invested in apartments in Bangkok for 10 years. Its projects include City Park Ratchada Apartments, with a total of 300 units near the Chinese Embassy.

It also plans to invest 500 million baht to develop the Ploen Chit Hotel, a boutique hotel with 100 rooms at the rate of 5,000 baht per night on a two-rai site in Soi Sukhumvit 26.

The hotel would be managed by a UK boutique hotel management chain. Construction would start in the third quarter of this year and finish by 2009.
The group also intends to develop a resort hotel on a 20-rai plot at Phangnga Bay. Another development will be 200 home offices on a 76-rai plot on the Bypass Road in Phuket.