Something funny is going on in Pattaya, a Thai beach resort where funny things tend to happen.
Previously best known in the tourism industry for its sleazy nightlife, Pattaya is enjoying South-East Asia’s first second-homes property boom, and the buyers are primarily wealthy Europeans and Americans.
Last year, the resort sold more than 230 million dollars of beachside condominiums, mostly to foreign buyers.
Although modest by international standards, the construction boom – there are about 300 condominium and residential projects under way in the Pattaya neighbourhood – has already raised concerns about exacerbated water shortages and rising crime against foreigners.
And the boom is pricing locals out of the market.
“Four or five years ago, you could buy any condominium unit for about 30,000 to 35,000 dollars,” said Clayton Wade, managing director of the Premier Homes Real Estate Co and a longtime Pattaya resident. “They have all at least tripled. “
The prices are being ramped up by the dearth of reasonably priced vacation homes in the United States and Europe, a growing global market for beachside property and a lot of speculation, including some money- laundering activity.
“We’ve got plenty of monkey business in this town,” Wade conceded.
Similar housing booms are taking place at Thailand’s other beach resorts – Hua Hin, Samui and Phuket – and to a lesser degree in other South-East Asian destinations, notably on Indonesia’s Bali.
And the take-off in second-homes sales is not limited to South-East Asia.
Europeans are flocking to Croatia and Bulgaria to snap up Mediterranean villas that are cheaper than what’s on offer in Spain. Americans are going south to Mexico, Costa Rica, Panama, Nicaragua and Honduras in search of affordable getaways.
The global migration from the developed world has been unleashed by a number of factors. For starters, there are a lot more wealthy people in the wealthy countries, and much of this new wealth has been generated off property.
According to estimates by The Economist magazine, the value of residential property in developed countries increased by more than 30 trillion dollars from 2001 to 2005, an increase equivalent to 100 per cent of those countries’ gross domestic products.
The Economist’s dire prediction in 2005 that this property boom is the world’s biggest bubble that is about to kaboom has yet to be actualized. Instead, the bubble has spread to more remote shores.
“Globally, what’s happened now is there are a lot of people not just buying a second home but finding that investing in real estate makes money,” said David Simister, chairman of the real-estate company CBRE?Richard Ellis in Bangkok.
Simister is selling luxury properties on Thailand’s Phuket island, some of which are fetching up to 5 million dollars. The foreigners who are buying these properties are often reselling them at a huge profit.
“People are very savvy investors,” Simister said. “They know property is an appreciating asset and absolute beachfront or ocean view is a finite commodity. ”
In other words, the property boom has gone global. It helps that the world is a much more connected place and that even far-flung locations are often easily accessible.
At your 5-million-dollar villa in Phuket, you are an hour’s drive from an international airport that can take you to any country in the world. And rather than queueing at a travel agent’s you can book your ticket via the internet from your home computer while watching CNN on cable TV and munching on some Kentucky Fried Chicken, home-delivered.
This is all good news for the rich. Construction on luxury condominiums and villas is also good business for local economies, providing jobs and new markets for local suppliers of goods and furniture.
But there are downsides.
Take a look at Spain, which boasts the biggest second-homes industry in the world, worth more than 4 billion euros (5. 2 billion dollars) in sales annually.
Foreign buyers have driven up housing prices at double-digit rates, making homes largely unaffordable for most Spaniards. About 30 per cent of Spain’s young adults live with their parents.
Sales of prime property to individual investors can also mean lost opportunities for the local tourism industry as the example of Galle, one of the most popular tourist destinations in Sri Lanka, shows.
“We are having a huge problem as foreigners have purchased homes in Galle city, posing a serious setback to the local tourist industry,” Mayor Kelum Senaratne said.
“At least 40 houses have been purchased outright by foreigners in the Dutch Fort in Galle, and they are making renovations according to their own will despite the fort being declared a World Heritage site by UNESCO,” the mayor said.
Social scientists have expressed concerns that this new migration of wealthy foreign homeowners into the developing world could end up causing more social problems, such as competition for water resources and rising crime, than the economic opportunities are worth.
“Governments think about [property] development in terms of investment, job creation, incoming dollars but not in terms of the social impact on the local population,” warned Allen Cordero, professor at the Latin American Faculty of Social Sciences in Costa Rica.