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Thursday 4 June 2009

Koh Samui Hotel Deals and How Big is Your House?

Tourism is down and hotels are cutting their rates both in Koh Samui and Bangkok. However, you will notice that this is done in a subtle way by offering limited promotions rather than a general reduced rack rate. Hotel room rates are very customer and travel agent sensitive and whilst modest increases year on year are accepted by clientele, major changes need to be on the back of a renovation or some other good reason to justify them. Therefore to increase the value of your hotel it can take a few years to achieve a higher Average Daily Rate and hoteliers do not want to take a step back by dropping the rack rate. Hence, limited period promotions. Despite the numerous promotions around the “big boys” obviously see a future in Koh Samui as Park Hyatt and Conrad are still building and Banyan Tree have quietly made good progress with their development to the north of Lamai which is due to open later this year. Bhundhari Spa Resort and Villas has just opened with 124 more rooms and villas and of course has an “Opening Promotion”. Sala Samui in Cheongmon have a “Sala Fly Free” promotion where complimentary one-way flights are on offer for up to two guests wishing to experience both SALA Phuket and SALA Samui. Nevertheless, reports in The Nation and Samui Express – copied later in this Newsletter – indicate that many hotel owners are finding it difficult to continue in the present market and are trying to sell. Whilst there is undoubtedly some truth in the article it is another example of “parachute journalism” where a reporter takes a snapshot of a situation following a brief visit and produces an article which seems to suggest that the properties being offered have come to the market as a consequence of the current recession. The reality is that every one of the hotels mentioned (in Koh Samui) has been offered on the market for at least the last three years and mostly at prices that were unrealistic then, never mind today.



Usually the owner is well aware that the price being asked is unrealistic but takes the view that somewhere there is someone who may pay it and at that price he will sell, but if it does not sell – so what! And sometimes they are right which makes valuing hotels here so difficult. In one case a beach front hotel was on the market for Baht 50 million. It was available for months, if not years. It eventually sold. Minor renovation – mainly just a paint job – was carried out and the property was put back on the market at Baht 110 million and sold within six months. No logic to this at all. Baht 50 million was good value. Baht 110 million was way over the top. There is another prevalent view that as time has passed, the value must have gone up. In one case a hotel had been offered at Baht 150 million and remained unsold for at least three years – it needed extensive renovation and was not ideally located. Late last year the owner put the price up to Baht 210 million because “it must be worth more now!” In this case it remains unsold and is likely to remain so for the foreseeable future – unless of course “someone from somewhere” comes along and proves me wrong!



How big is your house? Well it can vary depending on who measured it and by which criteria. The RICS produce a Code of Measuring Practice the purpose of which is to achieve consistency between valuers for the purpose of accurate comparison and definition. The Code runs to 42 pages and includes definitions of Gross External Area, Gross Internal Area, Net Internal Area and has a specific section relating to Net Sales Area. Most areas I see published on web sites are poorly defined and if I have the opportunity to check them on site, they are often misleading and often simply wrong by whatever definition used. The Code is extensively used in the UK and it is clear from experience that few people on the real estate industry here in Thailand use it or are aware of it – but then why should they be! There are currently about 60 fully qualified Chartered Surveyors practicing in Thailand and what is encouraging is the large number of young Thai people in the real estate industry who are applying for membership. Hopefully as more qualify and enter the profession, standards and consistency will improve, and even if the Thai valuers produce their own version of the Code for Thailand, then consistency will be achieved for the benefit of everyone. In the meantime, I will continue to abide by the RICS Code of Measuring Practice.


And property prices continue to fall! If you check our web site and look at the Hot Press Offers you will see a great number of properties with prices that have been reduced from between 15% and 50% with an average reduction of 34%. These reductions are now beginning to produce sales and, although still not many, there are a few more buyers around than there were a few weeks ago.


If you wish to receive the full monthly newsletter, please email me at hbonning@kosamuiproperties.com .

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