Paradise At A Price

[The_Moog]

This is a story about property buying in Asia.

It is from a subscription site, so Admin might not wish to keep it up.

Paradise at a Price

Minimizing the Risks When

Buying Your Dream Vacation Home

By BLYTHE YEE

Staff Reporter of THE WALL STREET JOURNAL

June 3, 2005

Howard Gross was so happy with his house in Phuket that he bought another one.

Mr. Gross, a teacher at the Canadian International School in Hong Kong, bought a townhouse overlooking the eighth fairway at Loch Palm Golf Club in inland Kathu in 2003. After spending about $215,000, and waiting three months for additions and a pool to be built, he and his wife bought another house from the same developer. "I was buying totally off the plan and buying on faith," says Mr. Gross, "but my faith was established because I'd done a project with him."

Five years ago, Steve Vickers also bought a house on a golf course but in a slightly less developed area -- Myanmar. Mr. Vickers, president and chief executive of Hong Kong risk management and investigation company International Risk Ltd., bought into a development overlooking a Yangon golf course. It took two and a half years, and $200,000, for the house to be completed.

When it was done, "it was bigger than Ben-Hur," says Mr. Vickers, recalling its four bedrooms, pool and view of the historic Shwedagon Pagoda. But the discontinuation of direct flights to Yangon from Hong Kong, as well as his waning confidence in the country's economic prospects, prompted Mr. Vickers sell the house eight months ago. He turned a 50% profit, but doesn't advise that home buyers follow his example: "Don't put all your eggs in a basket like that."

[ ]A PROPERTY PRIMER

Navigating the Legal Maze

Whether purchasers prefer a well-developed location like Phuket or a relative hinterland like Yangon, investing in a vacation home involves an element of risk. You can purchase a house in a remote paradise and get the biggest bang for your buck -- but put up with patchy infrastructure, slow construction and, in some countries, the possibility of political and economic instability. Buying into an area where developments are booming might mean more security and steady management -- but also higher prices and more competition when you're ready to sell. And after the successive shocks the region has sustained in the past few years including the tsunami, an outbreak of Severe Acute Respiratory Syndrome, and the Bali terrorist bombing, many buyers aren't that optimistic when it comes to rental revenue.

Considering snapping up a piece of paradise, either for your own pleasure or with a view to renting it out? Personal Journal polled property specialists and owners to see what prospective buyers should be thinking about.

Location, Location, Location

Resort vs. remote? Golf course vs. gorges? Infrastructure vs. in the middle of nowhere?

Falling in love with a patch of grass near the beach is luring many to Malaysia, the Philippines and Sri Lanka; interest is also rising in resort destinations such as the Indonesian islands of Bintan and Batam, says Djodi Trisusanto, a Jakarta-based vice president of real-estate company Jones Lang LaSalle Hotels. But property analysts say that Phuket and Bali, with their high degree of tourism infrastructure, remain the most popular locations for buyers -- even after the blows dealt by terrorism and the December tsunami.

For those who want to stretch their purchasing power, there are areas of Thailand and Bali where paths are a little less beaten. Take Thailand's beachside hot spot south of Bangkok, Hua Hin, where investors recently bought up off-the-plan houses at the AKA Hotel Resort & Spa; it's less developed than Phuket, and a highway currently being built from Bangkok to Hua Hin should cut the 2.5 hour transit time to about 1.5 hours. Plus, says one former banker in Hong Kong who recently bought a $235,000 villa in the AKA development, the royal family has a summer palace in Hua Hin, which means security levels are high.

Further south along the coast, the island of Koh Samui also is undergoing a flurry of developments, and there are a few upmarket villa complexes being built on Lanta Island on Thailand's west coast. Longlom Bunnag, chairman of the Thailand office of Jones Lang LaSalle, estimates that land prices on Koh Samui have increased by about 20% from last year as prospective buyers move away from Phuket, parts of which were hit by the tsunami. "People feel that the location of Koh Samui is, to some extent, safer than Phuket," he explains. Still, he thinks that any depression in Phuket's market will recover.

In Bali, developers are looking further afield, thanks to high land prices in sought-after central locations such as Seminyak and Jimbaran. Mark Thomson, senior sales consultant at Paradise Property in Bali, says that 100 square meters of land can cost as much as $23,000 in Seminyak. But further up Bali's east coast at Candidasa, and depending on how close the plot is to the beach, 100 square meters will go for about $4,000. That doesn't mean, however, that all the houses there will come cheap; Paradise Properties is currently selling villas next to Amanresorts's luxury Amankila property for as much as $1.5 million each, designed to buyer preferences, that take about 12 months to be built. Mr. Trisusanto says that there are areas earmarked for development in the next few years in west Bali, but warns prospective buyers that those sites will have hitches with basic infrastructure for a while.

Ownership Issues

Lawyers say that, after location, the second thing to consider when buying a holiday home is property-ownership rights. Forget about the pool, the golf course and the teak furnishings: "The first thing people will ask is 'How is the title? Lease or freehold?' " says Alicia Loh, a lawyer at Raja Sandosh & Naziha in Kuala Lumpur.

Regardless of where you choose to buy a vacation home, you'll run into a thicket of legal restrictions over a foreigner's property rights. For instance in Thailand, people who aren't Thai citizens aren't technically allowed to own land; homeowners can get a 30-year lease, with an option to renew, from the property developer. It's a common arrangement and probably the most popular for its relative straightforwardness, says Marcus Collins, a lawyer with McEvily & Collins law firm in Bangkok.

But many homeowners who buy on the higher end -- more than $250,000 -- want more than a lease, says Mr. Collins, under the logic of: "'If I pay that kind of money, I want to make sure I can own it freehold.'" Freehold ownership requires setting up a Thai company in whose name the property is registered. Buying a property with the added security of a freehold title generally makes such properties more expensive.

In Bali, long-term leaseholds of 25 years are the structure that most owners opt for. Foreigners can get freehold titles by buying property through an Indonesian individual in whose name the title is registered. Often, what binds the two is really just a gentleman's agreement, making this sort of arrangement susceptible to problems, warns a Jakarta lawyer who has advised foreigners on property purchases: "There's a lot of abuse going on right now where people think they're buying things and they're actually not."

Another arrangement allowed in some countries, including Malaysia, Thailand and the Philippines is strata title -- total ownership of an actual unit but not the land on which it stands. Although the property title can be registered directly in the foreign owner's name, it doesn't always mean that transferring the title from the previous owner will go smoothly. "Strata title in Malaysia is a nightmare," says Mr. Vickers, who owns an apartment overlooking Batu Ferrengi beach in Penang. Although he and his family have used the Penang apartment regularly since he bought it 10 years ago, "I still haven't got the actual deeds in my hand."

A number of new complexes offer certain arrangements without leases, including the 31-villa Shambala in Koh Samui, where developers allow foreign owners to invest in a Thai company. Puravarna in Phuket, which will open as a resort in 2006, is offering buyers either 90-year leases or strata title on condos, depending on what sort of property they purchase. Neither has been built yet, with developers currently selling units off the plans.

Development vs. Resort vs. Free-Standing House

Your vacation preferences will be a big factor in whether you decide to purchase in a development or opt for a free-standing structure. Mr. Gross looked at free-standing houses in Phuket that were comparable to the one he bought; standalone houses, he estimates, were about half the $215,000 he paid. But, for the extra money, the Loch Palm development offered ready access to a golf course. And the constant attention of the management team, as well as the community in the complex, made it the right choice for the retirement lifestyle he and his wife were looking for. With a free-standing house, "who will look after it?" he asks, ticking off troubles such as insects, security and mildew that are headaches for absentee owners.

Of course, in addition to paying a higher price upfront for the facilities, infrastructure and security associated with a house in a development, there are also compulsory continuing costs. To ensure the pool is kept clean and burglars kept away, homeowners have to pay regular management fees. On one of his Phuket houses, for example, Mr. Gross pays a flat service fee of $185 a year, as well as $25 a month in security fees.

If you want access to full resort facilities, a number of resorts have ownership plans; the Sheraton Laguna Phuket has 46 privately owned villas, and in Nusa Dua in Bali, construction begins next month on the St. Regis Resort and Residences, which will have 25 villas for sale, ranging between $750,000 and $1.5 million, with completion slated for late 2006.

If you invest in a branded resort that caters to holidaymakers, "when it comes to rental income, you have an edge," says Thomas J. Monahan, senior vice president of acquisitions and development for Starwood Hotels & Resorts Pte. Ltd., which includes the Sheraton and St. Regis brands. He argues that a resort will have a well-oiled branding and marketing machine in place, which potentially brings in a steadier stream of rental revenue for owners. The downside is that your access to the property is restricted to the amount of time stipulated in your contract and management fees might be higher than at standard developments.

Sometimes a free-standing home will be your only choice, particularly in less-developed countries like Sri Lanka, which has yet to see an influx of villa complexes. Management and rental services, should you choose to rent your house out, can be arranged through a company such as Eden Villas, which also offers project-management services for owners building in Sri Lanka. The cheapest option, particularly for those who don't plan to rent out, is often just arranging for a trusted caretaker to look after the property.

Other Risks

Developers say that interest in Thai vacation homes hasn't waned in the wake of the December tsunami. But tourism declines in tsunami-affected areas are a concern to homeowners who might be counting on rental revenue.

And in Sri Lanka, property law changes from before and after the tsunami mean that capital appreciation on a home isn't a sure bet. Last year, after public outcry at foreign buyers who were snapping up historic houses in prime areas, the government imposed a 100% property tax on foreign buyers (although it's possible to get around it with very long-term leases) that in effect doubles the price of a house. And after the devastation of the tsunami, the government is restricting construction 100 meters, and in some areas, 200 meters, off the coastline.

It's been a deterrent to buyers, says Iqbal Cassim, director of Sri Lankan property-management service Lankaproperty Net. His company received many calls from people who hoped to get deals after the disaster, but then balked when told about the new building restrictions. With this new law, and a tax that doubles the price of property, capital appreciation is debatable. Still, he says even without the prospect of selling the home at sizable profit in a few years, many owners are attracted by potential rental income -- which can top $1,000 a night in a super-luxury house -- and that "there are others who just want to come and savor the last years of their life here."

Mr. Gross plans to live in his Phuket villa for about six months every year, and rent out the first house he bought. "I massaged the spreadsheets for months to see what were the scenarios" if the house didn't rent, he says, but he isn't that worried; even if there is zero rental market for it, he's confident that he'll be able to sell it for more than he bought it for.

Mr. Vickers, on the other hand, thinks he's probably lost money on his Penang apartment, for which he paid about $50,000 a decade ago. But he's gained in other ways.

"I lost money in pure terms," he says, "but in real terms, my daughter grew up there."

Navigating the Legal Maze

Some popular holiday home destinations don't actually allow non-citizens to own land, but that hasn't discouraged overseas buyers. Property-ownership laws vary from country to country; here's a primer on legal restrictions and requirements in some sought-after places for second homes. But, it goes without saying, consult with an attorney before taking the property plunge.

INDONESIA: Foreigners can get 25-year leases. Another alternative is purchasing freehold through an Indonesian citizen. When there aren't family ties, what binds the two is often a borrower-creditor relationship -- one that, lawyers say, often depends on good faith.

MALAYSIA: Foreigners can buy freehold property in their own names, but the Malaysian Foreign Investment Committee and the relevant state authorities must approve the purchase. However, participants in the "Malaysia My Second Home" program, who are required to keep a minimum level of assets in the country, are exempt from having to get FIC approval. Strata title and leases are also an option, with the maximum term for a lease being 99 years.

PHILIPPINES: Foreigners can't own land, but many vacation home developments are registered as condominiums; this allows non-citizens to own strata titles. Leases are an option, as is purchasing through a corporation that is 60% owned by Filipinos.

SRI LANKA: Foreigners are permitted to own land, but there's a hefty 100% property tax. In condominium properties, it's possible to avoid the tax if you purchase above a certain floor, but other types of properties, including free-standing houses, aren't exempt. Some owners get around the tax by securing long-term leases on property.

THAILAND: Foreigners can get 30-year leases; developers often structure leases with options to renew. Strata title is also possible on properties registered as condominiums. Freehold ownership can be obtained by setting up a Thai company in whose name the property is registered; the company must be majority Thai-owned, but will have a share structure that allows the foreign owner control of the property.

[snoophound]

Strange isnt it.

We sell our land to anyone .Imagine if England or AUST or NZ had these rules?

How different would things be?

The Auckland real estate market would be non exisitent thats for sure.

/<snip> original long post removed

Edited June 6, 2005 by RDN

[baht&sold]

Thx M. Wouldn't have seen this if not for your post. No real surprises, except for possible strata title sales - beyond condos?? Also, the guy in Penang who lost 50 k in real terms after 10 years? One wonders if he bought on a sinkhole or??? (EDIT: misread that- he lost an ambigous amount after paying 50 k a decade ago- but still?) Hard to fathom compared to a thai market where current valuations for resort properties have in some cases doubled in one year. Of course that leads to other questions for which I certainly don't have answers and anyone who says they do, must also know the lottery #s in advance

Edited June 6, 2005 by bahtandsold

[The_Moog]

It is said that your two happiest days with a 2nd home are the day you buy it and the day you sell it.

[stevehaigh]

It is said that your two happiest days with a 2nd home are the day you buy it and the day you sell it.

<{POST_SNAPBACK}>

i heard that saying but about boats.

[Ajarn]

It is said that your two happiest days with a 2nd home are the day you buy it and the day you sell it.

<{POST_SNAPBACK}>

i heard that saying but about boats.

<{POST_SNAPBACK}>

Motorcycles and women, too, as I recall

[samran]

Strange isnt it.

We sell our land to anyone .Imagine if England or AUST  or NZ had these rules?

How different would things be?

The Auckland real estate market would be non exisitent thats for sure.

/<snip>  original  long  post  removed

<{POST_SNAPBACK}>

I think in OZ the rule is that only citizens and permanent residents are exempt from restriction (ie people with Australian or NZ citizenship, or Australian PR). Others (eg foreign students, foreign workers on WP’s) are only allowed to by if it is a newly built property, and only for personal use. Once they depart the country, they are obliged to sell the property, which because it is now ‘used’ can only be sold to an Australian.

Edited June 6, 2005 by samran

[Nordlys]

I think in OZ the rule is that only citizens and permanent residents are exempt from restriction (ie people with Australian or NZ citizenship, or Australian PR). Others (eg foreign students, foreign workers on WP’s) are only allowed to by if it is a newly built property, and only for personal use. Once they depart the country, they are obliged to sell the property, which because it is now ‘used’ can only be sold to an Australian.

<{POST_SNAPBACK}>

But I often see the ads of Melbourne residential property for sale (condominiums, I believe) in Bangkok Post. If foreigners not residing in OZ can't buy it, they probably don't advertise it on foreign newspaper?

[samran]

I think in OZ the rule is that only citizens and permanent residents are exempt from restriction (ie people with Australian or NZ citizenship, or Australian PR). Others (eg foreign students, foreign workers on WP’s) are only allowed to by if it is a newly built property, and only for personal use. Once they depart the country, they are obliged to sell the property, which because it is now ‘used’ can only be sold to an Australian.

<{POST_SNAPBACK}>

But I often see the ads of Melbourne residential property for sale (condominiums, I believe) in Bangkok Post. If foreigners not residing in OZ can't buy it, they probably don't advertise it on foreign newspaper?

<{POST_SNAPBACK}>

Edit: gave some wrong info....all the information is available here

Edited June 6, 2005 by samran

[LaoPo]

It is said that your two happiest days with a 2nd home are the day you buy it and the day you sell it.

<{POST_SNAPBACK}>

i heard that saying but about boats.

<{POST_SNAPBACK}>

Hmmm....maybe, but there is an English saying:

The best boat is your friends boat...doesn't that count for houses also?

LaoPo

[LivinLOS]

The longer I stay around Asia the happier I am to rtent and the more reluctant I am to bring any more than play / pocket / spending money here.. I know many have made out like bandits over development and land but the long term freedom to pack up and move should the need arise with no more thought than the loss of a months or twos rent feels better now then ever...