The number of branded residences in Phuket has increased significantly, with condominiums and villas managed by well-known hotel chains offering buyers access to hotels' amenities and services and, equally important, rental returns.
These developments are legitimately competing directly with hotels as they have hotel licences and are able to offer daily rates. The trend has increased the supply of rooms and single-owner hotels, putting 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.
Phuket authorities are cracking down on owners who rent out their condominium and villa units on a daily basis through channels like Airbnb. Branded residences, however, are different because they have hotel licenses to rent out units on a daily basis. Buildings without hotel licences are generally not allowed to rent out units for periods of less than one month.
With the introduction of branded residences to manage the rental programme, buyers have more incentives to purchase a property because they believe that the brand underwrites the quality of both the management and the project.
Purchasers assume that an international hotel brand will be able to efficiently and effectively market and manage their units, thereby generating income. They assume that an international management company would only sign a management contract with a property if they were confident about its quality.
There have been branded residences in Phuket for many years, the first being the luxury development Amanpuri, completed over 30 years ago.
Recent examples of branded residences in Phuket are 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 of usually less than 60 days a year.
Buyers of serviced apartments like rental management programmes, guaranteed returns, better security, and a hassle-free holiday home.
Since the properties are sold fully furnished and equipped and are ready to use upon completion, buyers don't have to worry about fitting and furnishing their units, which is often difficult for both foreign buyers and Thais who are not Phuket residents. With a full hospitality offering, purchasers know that the day-to-day necessities are taken care of as the brand will provide housekeeping, concierge, and room services.
Buyers will have the freedom of doing 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.
The property needs to be in the right location and have the right design and specifications to achieve the desired investment returns. At the same time, the hotel management company needs to have sufficient experience and ability to successfully market and manage the property.
Going forward, it is likely that the most successful properties will be those managed by the larger local and international hotel companies.
"Branded residences do pose a threat to the traditional hotel product. However, the success of a branded residential projects compared to a traditional hotel product will increasingly depend on the strength and experience of its representative brands and proven track records, as well as the business model driving the initial funding of each branded residence," says Atakawee Choosang, head of CBRE Hotels, Thailand.
Suthinee Chaowanich is an analyst at Research and Consulting, CBRE Thailand. She can be reached at bangkok@cbre.co.th Facebook: CBREThailand LinkedIn: CBRE Thailand Line@: CBRE Thailand Twitter: @CBREThailand and website: www.cbre.co.th