RE Voyeurism: Koh Samui Edition

When I was on Samui a few months for a project, I did a little “side”-seeing at some villa projects around the island.  Overall, with average prices in the nice areas at about ~$200/sf, I was seriously considering a purchase for a while.

What drew me to this particular project was the view.  The pictures don’t do it justice; when you’re in the villa and looking out over this Chaweng Hills vista, you feel like you’re flying.  I would like to know where in the world you can get this combination of a) this hill + beach view, b) located in a relatively urban area with most conveniences nearby (e.g. Tesco), c) in a growing tourism market, d) luxury build, e) listed at less than $1m.

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The Asset:

  • 3br villa at the Verano Residences (1 left in Phase II) as of November 2017.
  • 760 sqm of land, 340 total built area – 180 sqm indoor, 160 sqm outdoor (patio, balconies, terraces, pool).
  • Villa situated 100+(?) feet above Chaweng district in eastern Samui.
  • Price is 18.7m THB for villa only, 19.7m THB with furniture included. This is less expensive than many 3br developments in Samui, given its land plot size and views.

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Verdict:

A very, very reluctant monitor.  With an expected return of around 5-7%, I would classify this as a vacation property rather than an investment.  If we categorize it as a vacation property, ~$600,000 is a little too much for us for right now to plunk down in cash.

Actually, once I have the cash I’d rather develop my own villa and save about 30% on the overall price.  Most developers/contractors I talked to on the island noted that luxury villas can be built for about 10m THB.  Add that to land in similar locations going for 3-6m THB, and the better play is to live on the island for a year while managing the construction 🙂

Rationale:

  • Yield – yield is uncertain.  Little evidence of yields being in double-digits unless oceanfront.  Asset is fairly priced, but a 6% yield doesn’t compensate for currency and geopolitical risks and the ever-present risk of coups or other political instability in Thailand that keep people away.  Also, the airport is a privately-owned single runway.As a note, the pro forma that the developer sent to me illustrates 10-15%.  I think it may be a little high given the assumptions he uses of between $330-$700/night.  Airbnb is showing rates of at least 30-40% less for similarly-sized units and I discounted it somewhat.  There is also a long history on the island of buyers being promised double-digit yields and ending up with ones in the 6-8% range – the most notorious being the Aqua development, which is nearby, although it doesn’t have nearly the awesomeness in view or finishings.The yield is nothing to sneeze at, but you can get this yield in US SFRs in mid-size cities for much less risk, much less capital, and I can at least leverage it.My estimate may be way off, but I think even 10% isn’t enough to compensate for the various risks, especially if the point below is true.
  • Cap gains – Appreciation potential is uncertain.  Little evidence that price/sqm has risen much over the past 10 years.  Some of this may be because Samui also went through the 2007-2009 bust, but still.See below for an excerpt from decade-old newsletter from Berkeley Investment Advisors (red annotations are mine):
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  • Supply – Continuing supply that does not seem to have a natural limit.  Lots of land sales.  Although as a positive, premium product is being priced HIGHER than the target.  The big one will be Anamaya, which is directly on the coast and at a lower elevation, but right next to the beach.
  • Demand – Tourism is growing at double-digit rates per year.  No broker could or would give me an estimate of how many villas are sold per year, but I’d estimate an estimated 20-50 3BR sell per year on the island based on the absorption of the big projects.Samui is on the cusp of becoming a lot bigger.  With less than 3 million visitors it’s still on the under-visited side, compared to destinations like Bali/Phuket, but a growing blip on the radar – bigger than places like Boracay or Ko Phi Phi.  The Ritz, Holiday Inn, and Sofitel are entering the market next year..Picture3.png
  • Intangibles – Views are unparalleled for the price.  For ocean/island views with decent infrastructure and fairly urban locations (Bali, Honolulu, Malibu, Phuket, etc.), mid-$500k price leans towards a bargain.  Location in Chaweng Hills, one of the premium locations on the island.

Here’s a gratuitous picture again of the view.  Yes, that bathtub is on the balcony.

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sigh.

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