Phuket, Thailand is now in its peak tourist season and will also become a home buyer for tourists in the coming months. Every buyer has many different considerations when deciding to buy a home: the first decision to make is whether to buy an off-plan home or an existing home.
The pros and cons of each of these two options depend heavily on the risk tolerance of the buyer.
The benefits of buying an off-plan house:
1. Be able to choose the best unit
Once the condo or villa is completed, it is certain that the best units will have been sold and buying early can give buyers more options.
The highest demand for buying a condominium in Phuket is for foreigners to be able to own freehold real estate in the resort area. According to Thailand's Condominium Act 2008, only 49% of condominiums allow foreigners to have freehold. Thus, not buying a condo until it is built will almost certainly miss the foreign freehold quota.
2. Maximizing capital gains
One of the main reasons to buy a term home is to get a larger capital gain through asset appreciation once the development is complete.
This is attractive for real estate investors and speculators, as we have mentioned in previous articles, when buying a Phuket property during the pre-sale period, the price usually goes up by 30%, while when buying during the construction period, the price goes up by 5% to 10%.
Real estate speculators and investors want to buy a new construction project as early as possible and earn the difference with a lower pre-sale price. During this time, the developer is still in the process of obtaining building permits, confirming options and obtaining an EIA (Environmental Impact Assessment). Developers who want to reap the benefits of the sale as early as possible will introduce pre-sale incentive programs to buyers, often in the form of significant discounts, guaranteed rental returns, financial options and others. At this point, the buyer will get the lowest price, and once the condo is built, the maximum capital gain will be realized.
3. Payment of the house in instalments
Another advantage of buying a period home is that payments can be made in instalments during construction. Apartments can last up to 2 years, and villas are 10 to 18 months.
4. Larger design space
Buying a period home can give buyers more room to design their property, especially a villa, and buyers can make structural changes to the home, such as changing the floor plan or adding additional rooms. Sometimes buyers may also buy two adjoining condo units to make the room bigger. At this early stage, buyers can also design their own home d閏or, furniture, bathrooms, kitchens and household appliances.
Obviously, buying an off-plan home is not without its downsides, otherwise, everyone should do it. Buyers must weigh the benefits of buying an off-plan home against the potential downsides, as well as the benefits of buying an existing home.
The downside of buying an off-plan home:
1. Investment risk
A major factor in deciding whether it's good or bad to buy a term house is the risk factor. There is always a risk of investment, this project could be delayed or not built. If you buy an existing home, these issues are completely non-existent. For risk-averse real estate buyers, buying an off-plan home is not recommended.
Unless the developer puts out a showroom unit or completes the development earlier, buyers will not be sure of the quality of the finished product they get. When buying an existing home, buyers can see, touch and feel the finished product, so they know exactly what the condo they are buying is like.
2. Rental income
For real estate investors who are looking to earn income through rentals, buying an off-plan house cannot be done right off the bat and needs to wait until the house is built. If buying an off-plan condominium, it may take 2 years or more. For this type of real estate investor, buying an existing home would be more appropriate as income can start to be generated immediately. As previously mentioned in previous articles, rental income in Phuket has historically been very attractive compared to other global real estate markets.
If development is completed but not sold out, developers will often launch an existing home promotion, such as offering free furniture and no transfer fees, in an attempt to sell the rest of the home. This may be a good option for buyers, although you won't get the same capital gains on the price of the property as you would on the purchase of an off-plan, promotions can still be very attractive.
What about buying a used home?
We have clearly mentioned in our article published earlier this year and in our 2014 market report that the secondary real estate market in Phuket is less expensive and more cost-effective than newly developed real estate projects. There are many reasons for this: the appreciation of the baht, the appreciation of real estate prices, the increase in the cost of construction materials, etc., all of which mean that sellers of 5 years or more can offer substantial discounts and thus sell at a cheaper price than other sellers in the market and still make a profit easily. This has allowed buyers and investors to take advantage of current opportunities and has contributed to increased secondary market activity.
One downside to buying a used home is that it will usually take some renovation or remodelling work to make this property to the buyer's taste. While many renovations in Thailand are relatively inexpensive, especially relative to Europe or Australia, they still require time and experience from the buyer.
Typically, by buying used real estate, you'll miss out on a lot of capital appreciation opportunities, while buying an off-plan won't. But that's the case now with the secondary market, and with the recovery of the Phuket property market, some of the properties coming on the market are starting at incredibly low prices, which can generate the same capital gains as buying an off-plan house.
There are several reasons why the current property market remains slow in Phuket: no one group is picking up the mess left by Russian buyers, the world economy remains weak, the Thai baht remains strong against the euro, exchange rates remain strong in multiple currencies such as the UK, and many people misunderstand the political situation in Thailand, including potential buyers who are not familiar with the situation. Yet there is always a glimmer of light in the darkness, and the result is that buyers can buy some very nice homes from both the secondary market and developers.
For those who have set aside waiting for the baht to depreciate or the election to follow, they may be too late to miss this feast at the bottom of the market, which is now beginning to recover. Today is an excellent time to become a Phuket property buyer.
This article is contributed by Juwai Columnist, Richard Lusted.