The Phuket Property market offers many opportunities for smart investors. The inspiration for this article originates from the fact that in the course of working closely with our clients we often introduce them to successful Phuket Property Investment Strategies that previous investor clients of ours have used. We, therefore, thought it would be a cool idea to make these proven strategies available for our Investor’s Guide readers.
First of all, let us clarify that in this article we are talking about more than simply making a Condominium Investment in Phuket in order to make a capital gain and a healthy return on an investment over a number of years; we are talking about ‘outside the box’ investment strategies designed to maximize capital gains and returns, usually over shorter periods.
Gain an insight into the minds of savvy Phuket property investors through these three proven investment strategies.
The early bird strategy involves investing in pre-launch or pre-sale condo developments and re-selling before completion in order to make a capital gain of 30 – 50% over a 6 to 24 month period. Most condominium developments in Phuket Property scene are funded by investment capital and developers are usually prepared to propose special pre-launch prices to early investors. Generally, the earlier the investment and the greater the number of units purchased, the lower the price and the greater the return.
Typically, early investors are able to lock in a price per square meter up to 20% lower than the pre-sale price. As sales and construction progress, prices are raised step by step usually in the form of an initial circa 10% increase when the pre-sale promotion phase is over, and then periodic increases of 5-7% thereafter until completion. Once selling prices have reached a level that gives an early bird investor a satisfactory return, the developer can then release the investor’s units onto the market for sale (re-sale). Thus, the developer does all the work and of re-selling units on behalf of the investor.
A variation on the strategy is for the investor to leave some units in the rental pool to net a higher than average return on investment. A decision to go this route usually means committing to the rental pool for at least 5 years before re-selling in order to avoid the 3.3% Specific Business Tax (SBT) levied on condos sold that are between one and five years old. We have a whole other article whether off-plan property in Phuket is a safe investment.
Similar to the ‘early bird catches the worm’, this strategy involves investing a number of units, usually four or more, in the pre-launch or pre-sale stage and re-selling all but one unit before completion with the aim of gaining a unit at no cost.
An investor can then decide to live in the unit or leave it in the rental pool in and receive a passive return. Furthermore, all rental pool structures allow the owner to stay in the unit for up to 4 weeks a year so a free holiday home plus a handsome return is obtainable.
As the Phuket property market matures and available land is developed, better that average returns can be realized by re-developing existing properties in good locations. Freehold ownership structure here might not be available for this option so it is suited to investors with a higher risk profile. Older properties purchased, renovated and then rented out can achieve 10% return in year one and this is indeed the figure we recommend to aim for in order to assess whether this type of investment is viable or not.
There are a few common techniques that intelligent investors use to renovate older properties and make them more desirable including; painting to make the old new and appear bigger and brighter, installing new floors to make unit look larger and more modern, installing new light fixtures to provide the correct lighting and improving functionality and aesthetics of balcony space.
This is a hard question to answer and in doing so we can only go by our observations and experiences but we would summarize as follows; intelligent investors have the ability to think creatively and act upon instincts. Savvy investors seem to have one distinct advantage: they can think outside the box when it comes to crafting deals.
Intelligent investors seem to grasp the fact that there are no rules; which automatically puts them at a distinct advantage compared to the general population that believes that buying and selling real estate has boundaries.
In our experience, investors employing these strategies are more often than not prepared to consider the worst-case scenario if all goes wrong. As an investor, if you can accept the worst-case scenario and can see a way to work with it, then that is a good acid test when deciding whether to invest.
In addition, it is important with all these strategies to have an exit strategy. Buying something with no option to divest or sell when you wish to leave limited options for exiting stage left should you ever need to. Exit strategy also depends closely on your investment goals. For further reading, we recommend our 5 Mistakes to Avoid When Purchasing a Property in Thailand article or Why Investing in Phuket Property is a good idea. .
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full and managed with reasonable care, it is about the safest investment in the world.”
- Franklin D Roosevelt