High-end developers need to create broader appeal

01 October 2008

Real estate developers targeting foreign buyers, especially those in tourist destinations, may need to adjust their business plans to make their products appeal to a wider group of potential customers, according to executives.

Udorn Olsson, managing director of Para Development Co, the developer of Panorama Pool Villa in Hua Hin, said the failure to endorse the bailout package by US congressmen would certainly impact the European markets where the majority of buyers of Thai high-end properties reside.

Therefore, developers may need to adjust themselves to survive in the new business environment, which may include accepting lower margins

For its part, Para Development plans a more proactive strategy by approaching customers rather than waiting for them to find out about its projects.

The company also needs to adjust its products and specifications to cater to the middle markets, as well as Thai buyers. Mr Udorn believes there are some Thai buyers who want to purchase properties during the slow market in anticipation of capital gains in the long term.

Para would offer more flexible payment terms and absorb fees at its own cost to ensure that buyers reserve units.

Despite the unfavourable global situation, Martin Phillips, managing partner of the master licence partner of the German real estate brokerage Engel & Volkers for Southeast Asia, still believes that property is the right investment.

He suggested developers in the high-end market offer a guaranteed yield to buyers, who are advised to select properties in well-managed resorts.

"I am convinced that this is a great opportunity for investors to seek a safer haven in resort properties with a good annual yield rather than risk catching a falling knife in the financial markets," Mr Phillips said.

He does not see a potential drop in property values in Thailand, as prices here are not subject to the same pressure as in the United States or the United Kingdom. There is no bubble or risk that loans will exceed their values in most resort markets and most purchases are made in cash.

However, transactions will slow somewhat because there will be fewer buyers, a scenario that will impact related industries such as construction. There will be some aligning of property prices driven by sellers who need to find buyers because they may have to meet other financial commitments. Under such a circumstance, there will be price reductions but only for some properties, not for entire segments.

Dilokpol Sundaravej, a partner and managing director of TGR Group, the developer of Jumeirah Phuket Island, said it was premature to make an analysis. The situation has not yet bottomed out and there will be more victims looking for financial aids announced in the future.

But so far, he believes that since property buyers in Phuket mostly used cash, any impact the crisis may have on liquidity in the market will be minimum.

Source: Bangkok Post via Real Estate Information Center