There has been a significant increase in the number of branded residences in Phuket, with condominiums and villas managed by well-known hotel chains offering buyers the benefits of access to hotel amenities and services and, equally importantly, rental returns.
These developments are legitimately competing directly with hotels as they have hotel licences and are able to offer daily rates. This trend has been increasing the supply of rooms as well as the number of single-owner hotels. Consequently, increased competition will put pressure on hotels' occupancy and room rates unless arrivals rise at a similar or greater rate than the combined increase in the supply of both hotels and branded residences.
The authorities in Phuket are cracking down on owners who rent out their condominium and villa units on a daily basis through channels like Airbnb, but branded residences are different because daily rentals are allowed under their hotel licences. Buildings without hotel licences are generally not allowed to rent out units for periods of less than one month.
With the introduction of a branded residence to manage rentals, buyers have more incentives to purchase property because they believe that the brand underwrites the quality of both the management and the project.
Purchasers assume an international hotel brand will be able to efficiently and effectively market and manage their units, thereby generating income. Such a company, they believe, would only sign a management contract with a property if it was confident about the quality of the development.
PIONEERED BY AMANPURI
There have been branded residences in Phuket for many years, the first being the luxury development Amanpuri, completed over 30 years ago. More recent examples include the Wyndham Naiharn Beach Phuket and The Residence at Sheraton Phuket Grand Bay Resort.
Sales of branded condominiums in Phuket are increasing. Each condominium unit is sold individually to an owner, and well-known branded units will likely be rented out for most parts of the year. In exchange, the owner has the right to use the unit for a limited duration -- usually less than 60 days a year.
Buyers of serviced apartments like the rental management programmes, guaranteed returns, better security, and the appeal of having a hassle-free holiday home.
The properties are sold on a fully furnished and equipped basis and are ready to use on completion, so buyers won't have to worry about fitting out and furnishing their unit, which is often difficult for both foreign buyers and Thais who are not residents of Phuket.
With a full hospitality offering, purchasers also know the day-to-day necessities are taken care of as the brand will provide housekeeping, concierge and room service. Buyers have the freedom to do nothing as the hotel is responsible for the management and marketing.
Most buyers of Phuket resort property now want investment returns and the easiest way to achieve this is through branded residences. However, the brand itself is not a guarantee of success.
EXPERIENCE COUNTS
The property needs to be in the right location and have the right design and specifications to achieve the desired investment returns. As well, the hotel management company needs to have sufficient experience and ability to successfully market and manage the property.
The most successful properties are expected to be those managed by the larger local and international hotel companies.
"Branded residences do pose a threat to the traditional hotel product," said Atakawee Choosang, head of CBRE Hotels in Thailand. "Increasingly, the success of branded residential projects as compared to traditional hotel products will depend on the strength and experience of the representative brand and its proven track record, as well as the business model driving the initial funding of each particular branded residence."
Suthinee Chaowanich is an analyst in research and consulting, CBRE Thailand. She can be reached at bangkok@cbre.co.th