Koh Samui: Small Island, Big Potential
Feature From Tropical Living

For a small island Koh Samui is generating a lot of noise in the property sector. Recently designated by the Thai government for special development status, Samui is rapidly changing from a budget back-packer destination to a high-end retreat and looks set to rival sister island Phuket. As the seaside property markets in Phuket and Pattaya become increasingly expensive and more saturated, people are turning to Samui, Thailand's third largest island and centre of the latest surge of residential development in Thailand.

Agents estimate that investment in real estate on Samui is increasing at approximately 20% per year, thanks to an overhaul in the island's image that has attracted a more affluent set of visitors. Over the last few years Samui property has matured from a market formed through speculative land sales, to a multi-level market, that now presents buyers with an array of property options from high-end villas upwards of THB 20 million to estate developments. Mr. Andreas Pfiffner of Ko Samui Properties said, "Land is still the most popular and then stand alone villas. Gated communities are only upcoming as before there were not too many here on the island."

Just 21 kilometres at its widest point and 25km at its longest, Samui is endowed with great natural beauty. Hinterland areas are thick with jungle, there are forests hills of limestone and granite, spectacular waterfalls and long stretches of white beach hug the shoreline. Coconut plantations also dominate the landscape. The most popular and developed beaches are at Chaweng and Lamai on the east coast. These centres have burgeoned with accommodations, gourmet restaurants, nightspots, luxury spas, shopping and commercial services. Bophut and Maenam, on the calmer north coast are closer to the airport but quieter than the populated beaches.

Samui has built a staunch reputation as a centre of healing. There is a plethora of spas, retreats, meditation centres, fasting and cleansing programmes, reiki and hands-on healing masters, yoga instructors. Every year this industry draws the holistically minded and the curious to Samui's shores. Wonderful sites for snorkeling, trekking and generally enjoying the great outdoors entices nature lovers to Samui and golfers have the recently opened Santiburi Golf and Country Club in Maenam, a new driving range or the Samui Extra Golf Club at the Fair House Beach Resort that has three professional standard holes ideal for practice sessions. A number of new courses are also in the planning stages now.

The addition of the Bangkok-Samui Hospital has also raised the island's profile. As a member of the rapidly expanding 'Bangkok Hospital network of Thailand', Bangkok Samui hospital is a brand new, high quality International hospital offering a comprehensive range of medical treatments and medical technology. The international medical centre has multi-lingual staff and the company also has longstanding partnerships with most of the world's premier insurance companies. With this clean and healthy image, the island is now attracting an older and wealthier set of visitors from Europe and North America. Recent improvements in the island's flight connections has also opened Samui up to neighbouring Asian capitals.

Increasing numbers of these visitors are investigating the options available for purchasing property. Some people invest into a holiday home, others decide to make Samui their home base and some see promise in the holiday rental market. Mr. Andreas described, "The rental market in the 20 to 30,000 baht bracket is quite active." He also suggested that if developers can offer guaranteed investment returns over several years, the rental market must be healthy.

Whatever combination of motives compels people to buy on Samui, price is a strong determining factor. Currently it is approximately 15-25% less costly to build on Samui than similar seaside areas like Pattaya or Phuket. Mr. Andreas suggests that high-end villas start from approximately THB 15 million; properties in this category are edging higher within new developments. Estate developments are priced between THB 6 - 7 million and there are also more areas of raw land available at affordable prices, which means that investors are still able to purchase land with direct sea views.

Many people ask the question: is Samui ready for a property boom? As the island grows, more retail and personal services are being established to accommodate the new island residents, but infrastructure is weak in many areas. Mr. Andreas believes the main threat to the Samui market may be water. "The main threat is the deficient infrastructure and the problem of water, which might get acute with the numerous developments going on." Water shortages are a concern during dry months and drainage begs attention during the monsoon season. Power cuts are commonplace and many of the roads are deteriorated. Add to this a major shortage of skilled labourers and the picture looks less encouraging. However Samui was recently designated by the Thai government for special development status, and with this will come some much needed upgrades of major infrastructure.

Access is a big issue for Samui. There are numerous barges ferrying people and automobiles from the mainland just outside Surat Thani. The crossing takes up to two hours and is very cheap, although Surat Thani is 4 hours drive from Phuket, 8 hours from Bangkok. The only airport is privately owned by Bangkok Airways and although there are plenty of flights between Samui - Phuket and Samui - Bangkok, international connections are few. The airline links Samui to Singapore and recently began direct flights from Hong Kong. Many see this as a direct result of the stirrings in the property sector, as a large proportion of the current buyer group is made up of Hong Kong based executives.

Despite the island's short-comings the Samui market continues to gather momentum and experts are confident that the local government will begin improving infrastructure post haste rather than miss this opportunity to shine on the international market. The market is young, compared to Phuket and infrastructure there has only been upgraded over the last few years. If history is to be a guide, then Samui's beginnings are promising.

SWOT Analysis Based on the research compiled based on comments from Samui property agents, developers and residents, Tropical Living presents the following SWOT analysis of Samui. Please be advised that while every effort has been made to ensure the information herein is accurate, it can only serve as a guide. People who are serious about purchasing property should always enlist the skills of a certified property broker or agent to assist in the search for finding that perfect island property.

Strengths of Samui property Unique investment: Investment into the Samui property market is reportedly increasing at ap-proximately 20% per year. The next few years should see the island market bloom, yet Samui is still relatively undeveloped compared to other seaside resorts like Pattaya and Phuket. This brings a unique quality to investments as the island has thus far retained its tropical island feeling.

Land: There are areas of prime real estate available for purchase at prices much lower than similar destinations. Build costs are also 15-25% less costly.

ROI: Many estate developers lure investors with promises of up to 6% ROI through holiday rentals. Unlike the rental market in Phuket which has been affected by the Asian Tsunami, Samui's tourism industry is very strong and this is promising for investors. Samui's 'island feel', should it be maintained throughout the island's development, will also be influential in this area.

Security: Thailand is politically stable and economically secure. The Thai baht has strengthened steadily since the 1997 crash to become the second largest economy in Asia.

Healthcare: Samui has a strong image as a health hub in the region and every year this industry brings hundreds of thousands of people to her shores. Much as with the Phuket property scene, this invaluable exposure could well benefit the Samui property market.

New flights: Bangkok Airways recently began direct flights between Samui and Hong Kong. Expatriates working in this capital city account for more than half of Phuket's buyer group and many are now gaining interest in Samui especially after Dragonair and Thai Airways cancelled their direct flights from Hong Kong to Phuket.

Lifestyle: Samui has slowly transformed from a budget-backpacker resort to a high-end centre of healing yet at this stage of its development, Samui is still an idyllic tropical paradise; quaint and charming with a low-key lifestyle. There are white sand beaches, aquamarine seas, jungle, waterfalls and the Samui archipelago consists of 80 beautiful islands most of them deserted, just waiting to be explored.

Big names: The recent opening of Tesco Lotus should see other big name brands coming to the island which should render it more foreigner-friendly.

Pricing: People can holiday or retire in a villa with private pool, cook, maid and driver at an average cost of living about a third of the UK prices. From a quaint bungalow style property just minutes from the beach to an exclusive seaside villa, Samui's properties sell for less than Phuket property and at a fraction of other areas in the region. Weaknesses of Samui property Access: This is an issue for Samui. Although there are frequent ferries to the mainland, the island's only airport is privately owned by Bangkok Airways and international connections are few.

Young market: Being a younger industry, the Samui property scene offers less variety than other destinations however more developers are moving to the island and in the future there should be more property options. There are also fewer suppliers on the island meaning that a lot of materials need to be shipped from Bangkok, resulting in time delays.

Infrastructure: needs drastic attention especially in the areas of power, water supply and drainage, telecommunications and skilled labourers.

Quiet island: Some foreign residents on Samui find the island a little too quiet as there aren't many well established 'foreign' haunts for them to frequent and build up a social network. This will no doubt change as businesses aimed at foreigners multiply and greater numbers of residents move to the island.

Commercial Pull: In terms of being able to compete with Pattaya or Phuket, Samui does not have much commercial power. While some residents point to this as a strength, those investors who are looking for an Asian home-base or weekender, may find Samui's retail outlets a little weak.

Few Apartments: Building height regulations limit the number of apartment complexes on the island. This naturally closes Samui to buyers who do not want the responsibility and costs incurred with the upkeep of a whole house.

No freehold for foreigners: Under Thai law, foreigners cannot own land but there are ways around this; by establishing a company with 51% Thai ownership, by investing US$1 million in Thai securities like stocks or companies or by getting specific approval from the Thailand Board of Investment (BOI). Without this official sanction, the condominium is the easiest way for foreigners to get a stake in the Thai market as any foreigner can buy and own an apartment outright. For landed property most developments are sold with 30-year leasehold titles which may be renewed for two additional 30-year periods. Others allow the buyer to, in effect, buy a stake in the management / development company which is of course Thai. This way the villa owners each own a slice of the whole estate.

No financing for foreigners - The Bank of Thailand has always maintained a specific directive: no loans to foreigners without work permits. Thus most property sales are transacted in cash. Some developers offer their clients lines of credit from financial institutions outside Thailand. In something of a revolution for the whole Thai property market, the Bangkok Bank has announced an initiative available from its Singapore branch, which will enable foreigners to attain financing for leasehold landed property. Developers welcome this; many believe the lack of financing hinders the rapid growth of the market and time will tell if the Bangkok Bank's initiative will open any more doors within the Kingdom.

Opportunities in Samui Property Land: There is plenty of raw land available at reasonable prices, although as the market gains momentum these look set to rise. Currently plots with direct beach frontage are priced at approximately THB 8 million per rai. Prices drop further inland to as low as THB 2 million for mountainside plots.

Sea view property: Strict building height regulations on Samui means that many estates set back from the ocean still have the sea views.

Stand alone properties: Currently the available property is dominated by stand alone villas many of which are second and third generation properties for sale at very reasonable prices.

Gated estate communities: are on the increase although most are still under construction. It should be a few years before these developments change the face of Samui.

Villa market: The exclusive villa market is healthy on Samui with properties starting from THB 15 million upwards of 30 million. Threats to Samui property Rapid development: The development of Samui has been quite rapid to date and seems to be gaining momentum. Growth of up to 20% per year is perceived by some as being too brisk, and may result in a fast face-lift for the island. Samui residents fear that hasty development will affect the island's unpretentious island atmosphere.

The unscrupulous: As with every new market there is a threat posed by the odd unscrupulous developer who is looking for a quick sale regardless of construction quality.

Access: Unless access to the island is improved Samui will lose many expatriate buyers from Asian capitals, to Phuket. Typically this buyer group use their properties as weekenders and so, have little time to waste making connections in Bangkok, particularly when they can easily fly direct to Phuket. This issue also threatens the holiday rental market, as to the average traveler Phuket is simply easier to reach.

Currency / Economy: The threats to the Samui property market are similar to those in any country. The main threats to any market are currency and economy. However Thailand is politically stable and economically secure. The Thai baht has strengthened steadily since the 1997 crash to become the second largest economy in Asia.

Can Samui successfully develop into an international island yet maintain its unique tropical atmosphere? Or will it become a victim of its own success? While the island does have some major work to be completed before any of this can happen, the early stirrings in the property sector are very promising and investors should definitely look into Samui property when considering their next purchase.