Luxury villas are outperforming other real estate in the popular Thai resort of Phuket, according to a new report.

Despite the overall downturn in the property market in Thailand, Phuket luxury villa transactions recorded Bt3.5 billion of sale in the first half of 2009, the mid year report from consulting firm C9 Hotelworks shows.

The firm's Managing Director Bill Barnett pictured said supply and demand fundamentals for the high end are continuing to strengthen given that excess supply is being absorbed, while macro issues are restricting demand for new product launches.

'While market recovery prospects are being set back to 2011, there has continued to be a gradual upswing in activity, driven primarily by earlier than anticipated momentum in many of the financial source markets where potential overseas buyers originate from' Barnett said.

The report values the existing luxury villa inventory Bt10 billion with 92 units currently on the market. Between January to June of this year 19 properties were sold, while the resale market saw over Bt1 billion in transactions.

Mixed use hotel managed projects provided branding premiums saw a 55% uplift in achieved pricing per square metre and developers are seeing a stabilisation of gross margins despite increased costs of labour and commodities such as timber, the report points out.

'From our discussions with quantity surveyors materials such as steel are now back to levels similar to the first half of 2008 while construction volume remains low there is no expectation that pricing will drop,' Barnett explained.

The report concludes that continued tight equity and debt market will limit new developments while barriers to entry highlighted by limited ocean or beach front land indicates positive long term stability in this sector of the market.

Resales, rentals and an emerging fractional ownership market are expected to drive wider demand in the near to medium term.

www.c9hotelworks.com/downloads/phuket-luxury-villa-market-update-september-2009.pdf