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Tuesday, 1 June 2010

Ko Samui Properties Blog for May 2010

(Somewhat late but better that than not at all!)
Of course the big issue currently is the continuing unrest in Bangkok. I have been asked by several people if there is any problem on Koh Samui and the simple answer is NO. People in Samui just want to get on with their lives and businesses and to some extent we have the north/south divide in that the red shirts are mostly from the NE Issan region. Whilst there are many Issan people working here in the tourist and construction industries, they are simply happy to get on with their jobs and send money back to the family at home. I see tourists on the street every day enjoying themselves and we pass at least half a dozen “jungle safari” jeeps each morning as we drive to work. Tourism is undoubtedly down even for low season, but there are still many people here enjoying the sun and the beaches.

Distressed Real Estate is a term you often hear these days and essentially refers to property that cannot produce sufficient income to meet its running costs. No different to a business really. I have seen a number on Koh Samui and the usual reason is that the rent, which was reasonable when the lease was first signed, has increased automatically by a fixed percentage over a number of years and is no longer realistic in current market conditions. This is particularly true of long leases where the rent increase every five years traditionally by 5%. You might say that a 1% annual increase is not excessive but the increase is compound so works out more than that. However the real problem is that the automatic increases have no regard for actual market conditions and over a period of time there can be a significant discrepancy. This situation is most often seen in long term registered leases – any lease in excess of three years has to be registered to be enforceable and long leases cannot exceed 30 years. The European concept of “review to market rent” after say five years is unheard of here in Samui and indeed with the lack of transparency in transactions it would be difficult to find realistic comparable evidence. Add to that the nonsense of key-money and analysis becomes difficult if not impossible. A long lease in theory gives a tenant sufficient time to build the business and recoup the investment, make a good living and possibly even sell the business at a profit. The short term leases, under three years, make this much more difficult due to the restricted term. Many have options to renew for a further period of three years maybe more than once and provided the same parties (lessee and lessor) are still the same, it is usually not a problem. However, this obviously gives both sides the opportunity to review the rent to one that is in line with the market and acceptable to both sides. There is no easy answer to this but anyone entering in to a lease, be it long term or short, needs to think carefully how future rental increases will be implemented and how that will affect their business.

Living on a tropical island has many advantages. Take something simple like having a haircut in the open air. Near to where I live there is a very small mini-mart run by a local family. The son takes care of the shop but the father, who is essentially retired has installed a chair at the side under the projecting roof, fixed a mirror to the wall and runs a side line cutting hair. You sit back surrounded by banana trees and watch life go by in the mirror as a couple of kids play in a pile of builders sand on the opposite side of the road. Cars and bikes are buzzing by a few feet away and people say hello as they wander past. No air conditioning of course as you are out in the open, just a gentle breeze to blow away the silver hairs as they are cut free! But you know one of the best things about this is that there is no rear wall where many hairdressers fix an angled mirror so you can see the back of your head. I do not need reminding that the hair there is getting thinner all the time!

I was sad to report last month the loss of Big Joe and his funeral and wake took place on 3rd April at the Wat in Bophut. It was not surprising with Joe’s popularity that there was a huge turn out both at the Wat and at the Wake at the Bungee Jump later in the afternoon. Triple figures would not be an exaggeration. Joe of course had the last laugh. He was not called Big Joe for nothing. Thai crematoria are simply not designed for people of Joe’s girth.

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