Piya Sosothikul, a BBL executive vice-president, noted that about 250 condominium, detached home and vacation villa projects were under way in Phuket, with a market size of around 85 billion baht.

”Of this, around 80% are villas or vacation homes that typically are sold under 30-year leases. The remainder are condominiums that are usually sold on a free-hold basis,” he said.

Foreign buyers are estimated to outstrip Thai investors in Phuket by four to one, Mr Piya said, with unit sales priced from 20 million to 200 million baht.

Sales this year are estimated at around 20 billion baht, or nearly triple the turnover recorded just three years ago.

”The Phuket property market has exploded over the past five years. Previously, sales were mostly to expatriates working in Hong Kong or Singapore. Now over 70% of sales are to European customers, particularly those from England, Germany, Italy and Scandanavia,” Mr Piya said.

Restrictions by the Bank of Thailand on local bank lending to foreigners has helped restrain speculation in the Phuket market. Most transactions are generally by wealthy businessmen seeking vacation homes, or by retirees.

Bangkok Bank is a leading lender in the Phuket market, with approved credit lines of 10 billion baht in project financing to 40 developments on the island.

”We saw some declines in transactions in January and February, which typically mark the high point of the season, due to concerns about reforms of the Foreign Business Act and nominee shareholdings,” Mr Piya said.

”But after April, we saw transactions pick up again after there was greater clarity about the legal situation.”

He said the government should enlarge the Phuket International Airport to facilitate long-haul flights to Europe without stopping over in Bangkok.

An international convention centre and marina should also be built on the island to attract wealthy tourists and boost the Mice (meetings, incentives, conventions and exhibitions) market, he said.

”Yacht owners are typically high net-worth individuals that are prepared to pay a premium price for good service. We have only three marinas in Phuket now, which is hardly sufficient for demand, and none is able to service larger vessels,” Mr Piya said.

He said Bangkok Bank planned to extend another five billion baht worth loans to 20 other property projects on the island, and added that Pattaya, Samui, Hua Hin and Pran Buri were also attracting considerable interest from foreign buyers.

The political situation, stronger baht and changes to the foreign ownership law have slowed down property sales to foreign buyers, according to the Phuket-based property broker and consultant Andrew Park Co Ltd. Graeme Laird, the company’s president and chief executive, said property agents in Pattaya, Samui and Phuket discussed the situation and agreed that business had been bad since last year.

”The baht has been stronger by 15% in the past 18 months and the new enforcement of the nominee laws hurt nominee buyers. The worst is the political situation that was uncertain since mid-last year,” he said.

Currently, the company is managing sales for The Crest Phuket, a luxury freehold condominium project worth 630 million baht that is scheduled to be launched on June 28 in Phuket.

Owned and developed by a Thai tourism entrepreneur, the project is located on a six-rai site between Kathu and Patong beaches, about 1.5 km from Patong Beach. About five rai of the plot were formerly a non-performing loan asset that the owner acquired in 2005.

With a total investment of 400 million baht including the plot and construction, The Crest will have 22 two-bedroom duplex units sized at 127 square metres and priced between 22 million and 26 million baht; and eight two-bedroom poolside condominiums sized at 248 sq m and priced from 10-13 million baht a unit, or about 80,000 to 95,000 baht per sq m.

Mr Laird said the owner had demolished the old villas and would build eight semi-detached villas instead. Construction started in May 2007 and will finish in October 2008. Sales are expected to close within the completion period, said Mr Laird.

Without the negative economic factors, he said, the 49% quota to foreign buyers would have been sold this year.

”After completion and if there are any units remaining, the owner will set up a company to own them and allow long-term leasing to foreign buyers,” he said, adding that the company would stimulate sales with a 5% discount from the launch of the project until Aug 31.

Mr Laird said the company was in talks with developers to sell another two projects in Phuket. One would comprise 14 completed villas on Bang Tao Beach worth 300 million baht. Another is in the design process.

Meanwhile, another property agent, CB Richard Ellis, is managing sales of Shangri-La’s Phuket Resort and Spa with 50 villas scheduled for completion in early 2009.

”Buyers from across Asia and worldwide are already spotting a great investment opportunity with the private villas,” said David Simister, the chairman of CB Richard Ellis Thailand.

The villas will be sold on a leasehold basis in accordance with both current and proposed foreign ownership laws in Thailand. It will be located at the Layan end of Bang Tao beach on Phuket’s west coast.

CBRE estimated that well-managed rental properties in Phuket produced annual returns of 6-8% a year. Phuket also continued to offer buyers the potential for capital appreciation.

Although there is often a small risk associated with an off-plan purchase, the risk in this case would be insignificant given the operation and management by the Shangri-La brand and the endorsement of a reputable developer, CBRE said.