With Thailand’s traditional high season now well underway many visitors to Phuket over the next few months will also be property buyers. There are many considerations for buyers and investors to think about when making a purchase, and one of the first decisions is whether to buy an off-plan property or a completed one.
Both options come with benefits and draw backs, and a lot will depend on the buyers’ risk preference.
Purchasing a property off-plan has the benefits of being able to choose the best units. By the time a condo or villa development is completed it is certain that the best available units will have already been sold. Getting in early gives buyers greater choice.
When buying a condo in Phuket, the highest demand in resort locations is for foreign freehold units. Under the Thailand’s Condominium Act 2008, only 49 percent of space in a condominium can be owned freehold by foreigners, therefore delaying a purchase until a condo is completed will almost certainly mean missing out on that foreign freehold quota.
One major reason for buying off-plan is to generate a larger capital gain through the assets appreciation, once the development is completed. This is very attractive for property investors and speculators, and as we have mentioned in previous articles capital appreciation in Phuket when buying during the pre-sale period is typically as much as 30 percent, and between 5 percent and 10 percent when buying during the construction phase.
Speculators and Investors looks to buy in to a new project as early as possible and take advantage of pre-Launch Prices. During this period the developer will still be in the process of obtaining building permits, confirming plans and getting their EIA (Environmental Impact Assessment).
Property developers want to start generating income through sales as early as possible, so they will offer buyers pre-launch incentives, usually in the form of large price discounts, guaranteed rental returns, finance options and more. At this point buyers will get the lowest prices and achieve the largest capital gains upon completion.
Another advantage of buying off-plan is that payments can be spread over the construction period. For condominiums this can be up to two years, and for villas between 10 and 18 months.
Buying off-plan can give buyers greater input into the design of their property, particularly for villa properties where structural changes to the property, such as changing the floor plan or adding additional rooms, can be made. Sometimes it is also possible with condos, as buyers can purchase two adjoining units and create one larger unit. Buyers can also make decisions on décor, furnishings, bathrooms, kitchens and appliances at this early stage.
Obviously buying off-plan is not all upside, otherwise everyone would be doing it, and the benefits have to be weighed against the potential downsides and benefits of buying a completed property.
A major factor when deciding whether to buy off-plan is the right choice for you is the risk factor. There is always a risk the project might be delayed or not complete at all, which doesn’t come if you are purchasing a completed property. Buying off-plan is not for the risk averse property buyer.
Unless the developer has a show unit or an earlier-completed development, buyers will be unsure of the quality they will get upon completion. When purchasing a completed property, buyers can see, touch and feel the finished product so they know exactly what they are buying.
For property investors who are buying to generate income through rental returns, off-plan properties cannot start producing a rental income until completion. In the case of a condominium this could be two years or more. For this person, purchasing a completed property will be more suitable as it can start produce income immediately.
Again as mentioned in previous articles, Phuket has historically produced very attractive rental returns compared to other property markets globally.
If a development is completed but not sold out, developers will often offer promotions on completed properties, such as free furniture package, or free transfer fees to try and get the remaining units sold. This can be a good option for buyers although they will not receive the same capital gain in asset value as when buying off-plan.
It has been well documented in our earlier articles this year and in our 2014 market report that the resale market in Phuket currently offers better value through lower prices than new developments. There are numerous reasons for this. The appreciation of the Thai baht, appreciation in real estate values, increase in building materials and costs etc. all of which mean sellers who bought five years ago or more are in a position that they can offer a substantial discount, thereby undercutting everyone else in the market, and still walk away with a profit. This has resulted in an increase in activity in the resale market, with buyers and investors taking advantage of this current opportunity.
One of the downsides with resale properties is that they will usually require some redecorating or renovation work to get the property in line with the buyer’s tastes. Although a lot of redecorating and renovation work can be done for relatively low cost in Thailand, especially compared with Europe or Australia for example, it still requires time and effort on the buyer’s behalf.
Normally when buying a resale property, you would miss out on much of the capital appreciation that could be generated by buying off-plan however, such is the case in the resale market right now that there are some incredible offers which will generate an equal capital gain as buying off-plan once the market in Phuket has recovered.
Currently the property market in Phuket remains slow for several reason. No one demographic has come in to take up the slack left by Russian buyers. The world economy still remains weak, the Thai baht is still strong against many currencies but Thailand’s political situation is misunderstood by many would-be buyers who are not familiar with the Kingdom. However, every cloud has a silver lining and the upshot of this is that there are some fantastic offers available to buyers, both in the resale market and from developers.
For those who sit on the side lines, forever waiting for the Thai baht to weaken or the next elections, they are likely to be too late and will likely miss the bottom of the market which will already be recovering. Now is a great time to be a property buyer in Phuket.
This article was written by Kevin Hodges, the North Branch and Investments Manager for Siam Real Estate in Phuket, and author of the real estate firm’s Phuket Residential Market Research Report. He has more than seven years’ experience in Phuket’s real estate market.
