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Wednesday, 9 April 2008

Ko Samui Properties Newsletter April 2008

In the last Newsletter we carried the news that The Governor of the Bank of Thailand announced that day that the Capital Controls implemented under the previous military government would be scrapped from the following Monday. The concern of many people was that by removing this control the Baht would strengthen more and make visiting Thailand and buying real estate here more expensive. Watching the Baht during the day on the Monday and the Tuesday it in fact remained very stable and actually weakened slightly over the two days starting at Baht 31.37/US$, falling to Baht 31.55/$US and by Wednesday had stabilised at Baht 31.47/US$. Similar movements were seen against Sterling and the Euro, so immediate concerns were alleviated. Since then it has stayed pretty much in a narrow range and as of today stands at Baht 31.41.

I have reproduced an article in the full Newsletter in which Mike Holehouse states that in general hotel occupancy was down by about 15% in 2007. For most of us living and working here this is certainly something that we have seen on the streets and whilst all bars and restaurants can have good nights the overall impression is that 2007 was not a good year. Certainly the re-emergence of Phuket as a favoured destination was a factor having recovered from the post Tsunami downturn but there are other factors which come into play, especially for business owners outside of the hotel trade. A hotel guest is to some extent a captive audience and the hotels will do everything they can to keep the guest in the hotel. This is accomplished in a variety of ways – particularly popular with the Asian traveller is the half-board package. Breakfast and dinner is provided in the hotel and often accompanied by some form of entertainment such as traditional Thai Dancing, a Cabaret or even Elvis Presley!! By the time they have finished eating and watched the show, for many it is time for bed. They might go out for a stroll and window shop but further eating and drinking is not high on the agenda. The other main factor being faced by bar and restaurant owners is increased competition. In both sectors numbers have increased dramatically over the last few years and continue to do so. On the one hand that is a good thing because there is now a vastly greater choice on a truly international scale, of differing quality I must add, but everyone is competing against each other for what certainly last year was a reduced number of customers. There are of course many factors in addition such as the strength of the Baht, the cost of airfares and accommodation in comparison to other Thai destinations, infrastructure and so on – none of which are likely to change in the short term. However the report also quoted in the Newsletter that Samui could soon have City Status is very welcome and will allow the retention of funding to address some of these problems. Is this situation going to continue through 2008? I suspect it will and anyone in business here is going to have to make that extra effort to get at least their fair share of customers. I believe this is some of the pain Samui must go through to make it right for the future, but once we get through this Samui will become a destination to be reckoned with.

This does however bring me to another point which sadly we see so often. The perception of life on a tropical island in Thailand is simply idyllic and for most of us that is the truth. However it is not easily achieved unless you have already made your fortune and no longer have to work. Too many people arrive here without being in that position and think that the lifestyle they wish to aspire to can be found running a bar. If they have had experience in the industry before they may well be right and there are number in that category who do pretty well. The ones who do not however are those who believe the only experience they need are the years sitting on the wrong side of the bar. For a start they do not know the true economics of how a bar works and that it is, particularly in a tourist destination like Samui, a seven day a week commitment with constant late nights and the temptation to drink the profits. It starts off well and all their friends come and drink for the first few nights to show support, but then they inevitably wander off to other bars and continue having the fun they had before leaving the new bar owner sitting behind the bar waiting for the passing trade. That is the first problem. Passing trade is just that. Passing. Discouraged and bored, he now employs someone to help run the bar and starts taking off with his friends for the occasional evening out. It is all down hill from thereon and a few weeks later he wonders why profits are down and all of a sudden he is losing money, running out of savings and desperate to sell. Any business is valued on its profits and of course what figures he can show probably now do not even support the money he paid for it. If only that was just an apocryphal story. Sadly it is not and one I have seen more than once in the last year. If you are thinking of buying a bar and do not know what the Heineken Test is – forget it!

Support for the Matt Hampson Trust has been exceptional with the three main events – The Golf Day at Santiburi Golf Club, the Race Night at The Pub and the “Head Shave” and Auction at Coco Blues bringing in a total of £8,700 as of today with more contributions still to be collected – so £9,000 is not out of the question.

Remember - Songkran starts on the 13th April – so be prepared to get WET!!


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