While the residents of Chiang Mai are breathing a sigh of relief that the Ratchaphruek Royal Flora festival is now over, developers have enthusiaticly noted the windfall some made from the city's biggest influx of tourists ever. With 3,000,000 visitors in 3 months it demonstrated the very real future of this northern tourist centre, as well as the possible effect it's likely to have on the property market.

Construction of a 22 storey Le Meridien hotel that has been changing the face of Chiang Mai's Night Market area. When it's complete in 2008 this enormous high-rise will join big names such as Shangri-La, Mandarin Oriental, Sofitel, GHM (Chedi) and Pan Pacific, along with the Dusit Group's new D2 concept and the long-established Four Seasons.

Both the Hyatt and Banyan Tree are rumoured to also have future plans in this city, once regarded as a quaint guesthouse venue in the north of Thailand. Yet just three years ago only one of these existed. The question on the minds of many in the hospitality industry is whether this sudden flood of luxury rooms will be sustainable? The question on the minds of realtors is: how much is it going to inflate property values?

But these are big names with big money and they certainly would have done their homework before moving in. The fact that several have simultaneously gone ahead sends out a very strong signal that Chiang Mai's tourism is not only set to increase but go markedly upmarket as well. As we have seen in other tourist centres, it tends to set off a buying and development spree in the adjacent areas, and this has already become evident.

According to several opinion leaders we spoke to, the single biggest catalyst has been the announcement by the ousted Thaksin government to develop a large convention centre as part of the deposed prime minister's grand tourism design for his hometown. Although those plans may now be on hold, the current tourism minister assured a local hotel manager recently that it would still go ahead. But even without it, the improvements to infrastructure and tourist profile are having an effect. The completion of an international air terminal and the publicity from the Flora Expo have raised the city's profile. The hospitality industry seems bullish, and this has been demonstrated none more clearly than the creation of the Dhara Dhevi in San Khampeng. This 60 rai Lanna and Burmese-themed masterpiece under the Mandarin Oriental banner is an extraordinary work of art featuring purpose-built temples and palaces from long gone kingdoms. It ranks as one of Thailand's most ambitious hotel projects and is aimed firmly at the super rich. Even if the city has yet to attract that kind of tourist numbers, it's an excellent confidence booster for Chiang Mai as a destination, attracting gob-smacked travel journalists and TV crews.

Another bold move is that of the uber-trendy D2 boutique hotel in the heart of the Night Bazaar area. Developed as a pilot project, it signals a new direction for the Dusit Group which specifically chose Chiang Mai as a more accurate litmus test for its funky new hotels. It's targeted at urban hipsters, and is a counter move to the usual Lanna style and soft-adventure sales pitch. The attention to stylised detail is refreshing and it detracts from the hotel's position among street-side vendors and girlie bars. But the decision to develop a renovated hotel in this bustling area was a shrewd one considering the recent hike in property prices since the TCC Group snapped up a clutch of properties here. Their recent acquisitions include the Kalare Centre, Chang Klan Plaza, Anusarn Market and Panthip Plaza, as well as building the new Le Meridien which will occupy one of the city's prime corners.

Nearby is another chic new hotel, the Chedi, and we spoke to GM Eleanor Hardy about her impressions of Chiang Mai's outlook. A relative newcomer to the North, Hardy feels confident of the city's appeal, provided it doesn't try to copy Phuket, and lose its charm in the process. The Chedi itself is an interesting property case study, for it incorporates the former British Consulate building � a grand colonial edifice that occupies an enviable position besides the Ping River. Other new hotels, such as the popular Tamarind Village, have incorporated historic or neo-Lanna buildings into their development to retain the character of this 700-year-old city.

But the coveted riverfront position also proved disastrous when unprecedented floods in 2005 wrecked the hotel's ground floor and basement installations, six weeks after it opened. The deluge might have had a profound effect on property in the area but the enormous Shangri La going up further down Chang Klan road has buoyed confidence, and the recent opening of a Lacoste outlet is evidence that posh retailers rate this street's potential. Hardy sees the floods as a freak one-off and is confident in their future. "When the big marketing machines of the Sofitel and Le Meridien kick in, it is hoped all of Chiang Mai will benefit," she says.

The most famous of Chiang Mai's luxury hotels is undoubtedly the Four Seasons, out in Mae Rim. Frequently mentioned as one of Asia's best hotels in travel magazines, the hotel was a pioneer in the luxury concept more than 10 years earlier. It's set around rice terraces and offers a complete hideaway experience that has attracted the likes of Hilary Clinton, among others. It also offers an interesting benchmark on what happens to property in the area. A serene lakeside housing project was subsequently developed across the road and trendy galleries and coffee shops gradually filled the pretty rural road adjacent to the hotel. A little further down, a futuristic luxury development named Baan Azaya is marketing itself as a "unique investment opportunity."

Four Seasons general manager Andrew Harrison, is cautious about the expansion. "We need the airflow, particularly from cities in China and India," he says. He also shares the cynicism of many about Chiang Mai's ability to step up to the challenge the boom is creating. For instance, guests staying at the Dhara Dhevi's US$500 a night rooms first have to be limosined past a shambolic road construction debacle that has been mired in incompetence and graft for the past two years. "If Chiang Mai goes upmarket," Harrison says, "it cannot exist with screwed up pavements and the Night Market the way it is now."

"We have to be careful this five star tourism is matched by city services, otherwise we won't survive at this level if we don't keep up."

But even if the public sector displays a typically lackadaisical northerner's approach, the private sector isn't waiting around. Sunday Night's walking street has breathed new life into the property along Ratchadamoen street. The opening of the smart new Kad Klang Wieng "cultural arcade" is evidence of the gentrification going on in these areas. In February last year, Property Report documented the emergence of Nimminhemin street and since then parts of this "avenues" suburb have become barely recognisable with trendy new arcades and modernist coffee shop facades. Property prices on this street have become almost unaffordable for residential use, but it wasn't always like this. The Amari Rincome, Chiang Mai's oldest surviving luxury hotel, occupied the corner with Huay Kaew road at a time when cow pastures comprised much of the adjacent land. Former GM, Marc Dumar, who has witnessed 19 years of changing Chiang Mai, was responsible for managing their property on the adjacent soi 1 with its humble shop houses. Today it is one of the most exclusive retail streets in the city, thanks to the annual Nimminhemin Arts and Crafts Festival which has turned the entire area into a home decor Mecca.

Dumar is now overseeing the opening of the city's newest luxury hotel, the Sofitel. Set to open in March, it too has a riverside location and meets all the expectations of modern upmarket Asia travellers. He has one major advantage too, the hotel is owned by the progressive mayor Boonlert Buranuprakorn. There was a previous wave of hotel development in the eighties, he explained. Big names have come and gone but he believes this time around the development is more genuine. "We need more sports and cultural events to keep the momentum going."

"The Royal Flora expo proved we can handle three million tourists, it was mostly well organised and it filled up the lower-end hotels, which pushing more foreign tourists to us." Indeed, numerous opportunist developers completed condos in time to rent them out for short stays during the unprecedented flood of tourists.

And herein lies the real secret for smaller investors and developers. A surprising fact to emerge was the lack of luxury serviced apartments in the city. Twin Peaks, developed by Siam Zokie and aimed at the Japanese ex-pat crowd, is one of the few luxury modern condos in the city. Not surprisingly it sits right beside the new Shangri-La, and hasn't had trouble selling despite the 'luxury price tags'. While many small boutique hotels are opening up on quiet sois, more and more visitors are coming back to Chiang Mai to spend months, not weeks here during the winter months. One of the hotel GMs we interviewed expressed frustration over the shortage of high-end condos in the city, and pointed out that several of the hotel's guests had since returned and settled here. If they can afford five star rooms, they'll certainly be looking for new, comfortable, luxury-priced serviced apartments. We had difficulty finding suitable suggestions other than the newly opened Frangipangi, tucked away quietly behind the historic Wat Chiang Man. Competitively priced compared to the hotels, yet offering a similar level of comfort, it seemed an ideal answer for the upmarket guests that Chiang Mai is forecasted to attract.
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