Patong Building Boom - Why Now?

[DrDave]

I'm having trouble understanding the current building boom in Patong. Maybe someone can offer some insight to help me understand what's going on.

A casual look around the Patong area reveals that nearly every last square meter of land is under development. Most seems to have started in the past 12 months, and with quite a bit starting in the last 6 months or less. I'm specifically talking about new hotels, condos and guesthouses that are beginning to take shape everywhere.

As an example, look at the southern end of town, near the 4 way intersection of Prachanukroh, the new 3rd road, Nanai and Sirirat roads, where the old outdoor market used to be. Its now a huge development of guesthouses and shophouses, being built on speculation (I think). Further to the south on Sirirat road, there are a lot more condos and hotels nearing completion. The new 3rd road is being lined with new shophouses, condos and guesthouses as well, as is every available square meter on Nanai.

So, my question is: Why is this all happening now? It seems to me that this is about the worst time for developers to be building on speculation. Was it a "use it or lose it" scenario for construction loans (which the banks have now stopped granting)? With an uncertain political future, plummeting tourist arrivals and unfavorable exchange rates for many foreigners, I can't figure out who would be buying or leasing any of these new guesthouses that are being built. The guesthouse business appears to be struggling now - just look at how many of the new ones on Soi Banzaan and Nanai have turned over already. I have no idea of what the actual number is, but from looking around town, it appears that there could be 1,000 - 2,000 new guestrooms and condos coming online in 2009. (I won't even talk about the increased load on the already overburdoned water, sewer and garbage disposal infrastructure that's going to cause).

While it probably won't be as bad as 1997, I can't help but think that more than a handful of people are going to be left holding a big stinking, dripping bag of doggie doo-dah in the next few months.

[LivinginKata]

So, my question is: Why is this all happening now? It seems to me that this is about the worst time for developers to be building on speculation. Was it a "use it or lose it" scenario for construction loans (which the banks have now stopped granting)?

Most of these new developments would have been in the planning stages long long before all the current difficulties (world recession & Thai government situation), and when TAT were predicting year-on-year increases on tourist arrivals.

Even with rosy tourist number it seemed to me that this building boom would have provided far too many condo, rooms, & shops coming on stream early 2009. I've witnessed the building boom in Patong over 12 years (indeed I have been part of that), but at least it was on a measured annual scale. The current building boom is HUGE.

The infrastructure (electric, water, phone lines) can't cope with existing buildings in Patong, so I don't know what the future holds ....

[DrDave]

...

Most of these new developments would have been in the planning stages long long before all the current difficulties (world recession & Thai government situation), and when TAT were predicting year-on-year increases on tourist arrivals.

...

Agreed - but tourist arrivals have been increasing significantly for years (excepting for the tsunami), and this year, the amount of new development has grown exponentially compared to prior years. New condo projects keep appearing, selling "off-plan" in a market that's already got too much supply. I would think its highly likely that some of these will not start construction, and the developers will just sit on the land until the market improves.

Not that I want to see a lot of half-completed projects in Patong (like we see in Bangkok due to the 1997 fiasco), but I don't understand why developers are continuing to pour their capital into these new large guesthouse buildings, knowing full well that they probably won't be able to sell or lease them for quite some time after they're completed.

[LivinginKata]

Be interesting see if anyone breaks new ground this year ... And have you noticed that many of the buildings in progress have ground to a near halt ...

[LivinLOS]

A Thai answered this one way..

The price of building materials had been rising with the commodity boom, and recently those same materials have dropped dramatically. Thier answer was I need to do this now, while I can still afford to build it, or I wont be able to later.

However you simply dont find Thais that seem to perceive cycles.. Everyone seems to think ever increasing amounts of farangs will keep coming, wave after wave, all leaving their baht in the process.. The possibility that they might not come for a couple of years, or that other places might take the place of Phuket as it gets more developed or even that the money thats brought may be harder to earn simply isnt part of manys thinking. Built it and they will come is the mantra.

[sweetmusic]

Thai's do not understand the cycle or cyclical trends is so true, they are neither educated or conditioned for this.

However Phuket as a destination is very global, why are the Marriot group so commited to it as an example, the Patong Courtyard looks great with the Kamala one about to open.

Given that most Western currencies are off 25 to 30% vs the baht, the exception being the US$ and of course the Asian ones, factor in a 20% property price correction and off we go again, the buyers may not be from the usual destinations but Phuket would look cheap to someone from Hong Kong or Singapore or even affluent China.

Build it, sell it or rent it is the whole strategy, why would it change? Go see the that new market or whatever opposite the Duang Jit, apparently it's sold/rented out and they are only just putting the roof on. How many empty shop houses do you see?

It is my firm opinion to sell any property the price needs to reflect the quality or vis versa and also the current market conditions. How much are those apartments being offered on Patong Hill? How much could you actually buy one for?

It's tough and it's going to be hard, but i know where I would rather be.

Now Governor get after the guns.

Edited January 17, 2009 by sweetmusic

[slackula]

the Patong Courtyard looks great

What occupancy rates are they achieving?

[LivinginKata]

the Patong Courtyard looks great

What occupancy rates are they achieving?

I did not even know it was operational yet.... when I pass (daily) by I don't see any guests going in & out. The Hard Rock Cafe (in Courtyard complex) seems not to be open until March 2009. When it was the Tropicana it never was very busy. An unlucky building by all accounts.

[sweetmusic]

My comments were made in a general context, staying on the thread topic, not the here and now, I was given an EXAMPLE of an international organisation that has Phuket in it's strategic development plan.

Off for a beer now enjoy the rest of your weekend

[pothai]

The buildings will probably stay empty for 2 or 3 years...look at other places with a boom...Samui...no end of empty town/shop houses and developments...Hua Hin, exactly the same but on a lesser scale as it is still reasonably busy. I think the only real tourist destination that has acomplished a sense of logic is Cha am....some real good developments and all sold out...even now new businesses opening on a daily basis, some real large hotels built and full at present. They may not have Macdonalds, Burger King, Pizza Hut etc but maybe this could be the secret to attracting real paying tourists that actually offer the local environment something rather than just proping up girlie bars and massage parlours

[LivinginKata]

I think the only real tourist destination that has accomplished a sense of logic is Cha am....some real good developments and all sold out...even now new businesses opening on a daily basis,

You obviously have not looked down the side streets of Cha-am beach area. There was a huge building boom there about 20 years ago when loans were easy to obtain. The majority of the shop houses are still vacant, many look in ruin due to zero maintainance. Sure the front beach strip is doing well, but have a stroll down any side street.

My wife is from a village near Cha-am and we usually stay in a Cha-am hotel for a few days a couple of times each year, and I can tell you that over 12 +years I have seen plenty of businesses closing, someone else tries their hand, closes, .... I don't see businesses opening on a daily basis. It's dead Monday - Thursday, then the Bangkok hoards arrive on Friday afternoon, leaving Sunday night.

[pothai]

There are a some sois to the very South and the very North of the beach road that are a disgrace and should be knocked down,but most centrally are abundant with quaint townhouses or small guest house..Take a look all around the KlongTian area......some great villas built already...seriously try and find a unit for rent...not much chance as all are full and anything that goes up for rent/sale is gone almost immediatly.....

[DrDave]

...

Build it, sell it or rent it is the whole strategy, why would it change? Go see the that new market or whatever opposite the Duang Jit, apparently it's sold/rented out and they are only just putting the roof on. How many empty shop houses do you see?

...

That was my point: why invest all the money to built it, if nobody's going to buy it or rent it in the foreseeable future. Better to sit on the vacant land waiting for a more opportune time, rather than plowing more money into something that will have no immediate returns. Supports the notion that Thai developers don't concern themselves with cycles.

I'm really surprised that that new market they're building opposite the Duang Jitt is already booked. Any time I've been to the nearby OTOP market, its dead. I'm guessing this new one will be something similar? As for empty shophouses, there are a lot of them in Patong. From what I can see, most new shophouses are empty. Look at that new block of 4 buildings on the beach road, next to Graceland. 4 buildings, each with 8 shophouses each on the ground floor. All 32 (except for 2 which contain a restaurant) are empty. Same thing for that new big guesthouse/shophouse development at the 4 corners intersection - in the completed buildings, all the shophouses are empty. Just took a ride down Nanai Soi 8 and saw new shophouses going up there, too.

On the other hand, I don't consider investment by multi-nationals like Marriott now as being imprudent. They're building hotels that appeal to a certain niche market, and will no doubt be seeing some kind of return on investment the day they open. This is entirely different from the people who are building "dime a dozen" commodity guesthouses that will remain unsold/unleased returning nothing to their investors when completed.