A Tale of Two Islands

Asia's premier island escapes did not always profit from their coastal charms. Phuket came into its heyday in the 19th century when Chinese tin miners exploited its mineral-rich hills. Later, fortunes were made in rubber trees. The island's main city was originally inland from the Andaman Sea to distance itself from possible devastation by tsunamis or typhoons. So, too, in Bali, where the rich cultural legacy of the Hindu Majapahit culture drew bohemian Western visitors in the 1930s who were mystified as to why most Balinese turned their backs on the lovely beaches, even forsaking fish from their normal diets. (The answer was, in part, because the coasts are considered the domain of demons.)

In the 1970s, though, Bali and Phuket were inundated by foreigners searching for unspoiled hideaways. Tourism soon dominated other industries, with hotels and nightclubs lining once empty beaches. By the 1990s, as overworked Hong Kong investment bankers and Europeans priced out of the Mediterranean real estate market began looking for getaway-home alternatives, the residential property markets in Bali and Phuket began to sizzle. On the Indonesian island, vacation homes mostly take the form of individually constructed villas or those built by smaller developers. The houses, usually designed in a Bali modern style that is now an architectural touchstone for tropical hotels worldwide, are often rented out most of the year to offset building and maintenance costs. Although the Bali model allows for personal creativity, it also means that owners must hire full-time staff to tend to their paying guests, who fork out an average of $200 a night for a two-bedroom villa. In Phuket, however, the vacation market is dominated by condominiums or villa complexes managed by luxury hoteliers. Such management services come at a premium — these properties cost about 30% more than similar nonbranded villas — but you don't have to worry about whether the gardener is feuding with the cook.

House Rules
Buying property in both places isn't quite as simple as purchasing a house back home. Mortgages are rare. Currency fluctuations make buying at the right time all the trickier. And, most importantly, in both Thailand and Indonesia, foreigners cannot own land. Expatriates have two choices. They can either lease land on a long-term basis, which means the value tends to depreciate as the years pass. Or they can set up legal structures in which a local person or company owns the land but usage rights are held by the foreigner. Although tens of thousands of expatriates have negotiated such deals, they can be at a disadvantage should a dispute occur with the local owner. And in Thailand, government officials over the past two years have hinted that they may begin scrutinizing the legality of shell companies set up by foreigners.

Thailand does offer one other option. Unlike in Indonesia, foreigners can own condominiums outright, which explains why apartment complexes are popular in Phuket. Nonetheless, the real lure of Phuket is a villa of your own, preferably with a private infinity pool and ocean view. From 2006 to '07, at least 2,300 high-end residential units were launched in Phuket, and roughly 970 more came up for sale in the first half of this year, according to Colliers International. Prices have skyrocketed, with new buyers from India, South Korea and even Central Asia driving up demand. At the Trisara residential complex, for instance, a sea-view, fully furnished two-bedroom villa managed by the boutique hotel of the same name goes for upward of $4 million for a 120-year lease. A first phase of 18 villas perched over a secluded bay has already sold out, with one three-bedroom property having changed hands four times, its sale price more than tripling to $10 million earlier this year. "It's amazing to see these prices," says sales manager Sukanya Chuaywang, "but they keep selling."

Does the real estate meltdown in other parts of the world presage a price correction in paradise? Surely, as hedge-fund managers find themselves without fat end-of-year bonuses because of the recent market madness, they'll shy away from acquiring luxury second homes. Gallmann of Exotiq Real Estate acknowledges that the financial crisis will dent demand, particularly in Bali where the real estate volume is higher than in Phuket. But he isn't too worried. "Look, I've been involved with Bali for 20 years and through that time we've gone through more than you can imagine, from the Asian financial crisis and a political revolution to SARS, bird flu and two bombings," he says. "But in all that time, property prices have never dropped."

Down to Earth
For me, my current concerns are less global and more spiritual. The former owner of our land, a rice farmer, feels guilty because he failed to erect an on-site shrine to a local goddess. He thinks we should build it to ease his soul and promote village harmony. After all, locals have heard the spirits on our land wailing when they use a nearby water source. Then, in an offhand remark, our shaman tells us about a Frenchman who had built a villa nearby. Wija was called in to bless the land and chat with the spirits about their wishes. He gave advice to the foreigner but apparently none of the spirit-appeasement tactics were followed. After the house was built, a slew of mysterious things occurred. First there was a fire, Wija recounts, then a burglary. The foreigner has since sold his villa and left Bali. Wija smiles. "It is best to keep the spirits happy," he says. We can't agree more — but we still don't know how much happiness will cost us.