Phuket stands out as a tropical paradise within Thailand, with beautiful beaches, nature, weather and much more.

The island is well connected to the mainland, allowing for faster and cheaper transportation, and has the second largest international airport of Thailand, making it a popular destination for domestic and international travel. Phuket is also well known for its recent infrastructure developments, a number of marinas located around the island, advanced international healthcare facilities, schools and entertainment venues. Tourism is at the heart of Phuket’s economy, with peaks of 9 million tourists per year.

Facts:

• Phuket has one of the fastest growing property markets in the world
• Phuket’s property market is 90% mortgage-free
• Phuket is Thailand’s wealthiest province and also the jewel in the crown of Thailand’s tourism industry.
• Tourism traffic and occupancy demand constantly increasing
• International investors create a steady flow of revenues

When buying a property in Thailand, off-plan is a common option. Off-plan refers to property purchased directly from a developer, or in some cases a first owner.

Buying off-plan means committing to buying a property before its construction is completed.

This often means purchasing the property when it is about to be built, but not necessarily: even if the property is already in construction, it is still an off-plan purchase technically speaking.

In a growing real estate market such as Phuket, buying off-plan allows investors and homebuyers to invest in a property at a lower price than what they would normally pay at completed construction. At the same time,buying off-plan gives investors the opportunity to choose a specific location or set of features that would not be available after construction. As it often is the case, there are advantages and disadvantages that come with choosing an off-plan property.Here are some strategic choices investors often go for when buying off-plan properties in Phuket:

EARLY BIRD CATCHES THE WORM: Off-Plan Properties are usually sold within the lowest price range, and therefore can yield the highest capital appreciation after construction. If you are looking for an immediate return, investing in pre-launch or pre-sale condo developments, and re-selling before completion, can yield a capital gain of 30 – 50% over a 6 to 24 month period. Generally speaking, the earlier the investment and the greater the number of units purchased, the lower the price and the greater the
return.

BUY 3 GET 1 FREE:

This strategy involves investing in a number of units, usually three or more, in the pre-launch or pre-sale stage and re-selling all but one of the units before completion. This allows investors to acquire a unit at basically no cost.

Investors can then decide to live in the unit or receive a passive return through rent.

MAKE HASTE SLOWLY:

If you are looking for a long-term investment, off-plan property provides you with a safe strategy to buy units in the pre-sale stage, increase their value by at least 50% on completed construction, and eventually re-sell for a much higher value.

Some key advice for real estate investors in the Phuket scenario:It is almost a misnomer to refer to “The Phuket Real Estate Market” because it is not a homogeneous entity. It is divided (and even subdivided) into categories which collectively include a diverseConsider hiring a real estate agent or property expert to help you deal with documents and registrations always check government regulations on rental properties there are now over 20 Hotel-Licensed Condominiums (also called Condotels) in Phuket. This market segment is significantly growing and offers incredible opportunities for real estate investors.

Major hotel brands – household names in hospitality – are getting involved in the management of these properties. When the condominium is completely structured as a Hotel with a good number of facilities, it is important to ensure proper organization and structure which can result from quality staff training, experienced management, high revenue and financial control.

A good quality organization benefits guests with a memorable experience, while also benefiting property owners with a profitable return. For this reason, you should make sure that the property you choose to invest in is 100% legal and has a hotel license – which makes it available for daily rent (the most profitable of all forms of rent).

Every crisis brings an opportunity, and in 2020 the worldwide COVID-19 situation has provided international investors with several great opportunities. Timing is the key factor that can make or break your investment strategy

Being one of the safest investment choices, properties offer great opportunities worldwide – and Phuket is not an exception, it is a great option!

With the growing digitization of processes across all industries, it is now possible and widely popular to purchase properties online: virtual property viewings, conference calls and 3D tours have been implemented by real estate companies and private property owners to adapt to the current times and facilitate property investments. Moreover, complete purchase procedures can be managed remotely, with help of a trusted developer and Property Advisor.

Tourism is an economic contributor to the Kingdom of Thailand. Estimates of tourism revenue directly contributing to the GDP of 12 trillion baht range from one trillion baht (2013) to 2.53 trillion baht (2016), the equivalent of 9% to 17.7% of GDP. When including indirect travel and tourism receipts, the 2014 total is estimated to be the equivalent of 19.3% (2.3 trillion baht) of Thailand’s GDP. The actual contribution of tourism to GDP is lower than these percentages because GDP is measured in value-added not revenue. The valued-added of Thailand’s tourism industry is not known (value-added is revenue fewer purchases of inputs). According to the secretary-general of the Office of the National Economic and Social Development Council in 2019, the government projects that the tourism sector will account for 30% of GDP by 2030, up from 20% in 2019.

Tourism worldwide in 2017 accounted for 10.4% of global GDP and 313 million jobs or 9.9% of total employment. Most governments view tourism as an easy moneymaker and a shortcut to economic development. Tourism success is measured by the number of visitors.

The Tourism Authority of Thailand (TAT), a state enterprise under the Ministry of Tourism and Sports, uses the slogan “Amazing Thailand” to promote Thailand internationally. In 2015, this was supplemented by a “Discover Thainess” campaign.

In Asia’s first international destination recovery initiative post-COVID-19, the Phuket Hotels Association and global hospitality branding agency QUO have joined forces to craft an aspirational relaunch campaign aimed at reviving travel to Phuket.

The Imagine Phuket campaign focuses on the sights, sounds, feelings, tastes, and – most importantly – emotions that Phuket evokes in fans around the world, making them yearn for all they have missed during the global pandemic.

Motivated by a desire to restore the island’s tourism industry and save jobs, Phuket Hotels Association kicks off the campaign with a fresh logo and video, designed to evoke in travelers how incredible it will feel when they can share a perfect vacation with loved ones again.

The initiative enables island hotels to come together with one voice and one message. Each property will be given the creative resources to personalize videos, images, and logos with their branding, creating bespoke versions of the campaign’s inspiring message. By reaching the combined audiences of 75 participating hotels in the private sector, there is a rare opportunity for authentic, large-scale virality.

Phuket has been one of the hardest-hit destinations in Thailand, and hotels have struggled to reopen. In a press conference on 10 June, Phuket Chamber of Commerce President Thanusak Phungdet told reporters that COVID-19 had already cost the island over THB 120 billion (USD 3.9 million) in lost income, with losses expected to reach THB 280 billion (USD 9.1 million) by the end of the year if the situation doesn’t improve. But despite unemployment increasing by over 34% Yoyo, according to local reports, island residents remain resilient. This campaign seeks to be the first small step toward recovery.

With Phuket Airport open, and Thailand poised to reopen to international travel this coming season, Imagine Phuket reminds viewers of the flavors of Thai food, the dreamlike limestone karsts of the landscape, the beguiling smiles, and the feeling of freedom that comes with every visit to Phuket.

“Phuket is the leading resort destination in Asia and one of the most loved resort destinations anywhere in the world,” says Anthony Lark, president of Phuket Hotels Association. “Our members have come together with QUO to create a campaign, in both English and Thai, to evoke the soul of the destination,” said Lark.

As Asia’s most-visited island destination, with over 10 million arrivals last year, Phuket is among the first to embark on a significant relaunch. In the months after reopening, Phuket hotel industry is hoping that it will be able to attract many of Thailand’s 20 million domestic travelers. “The Imagine Phuket video, and integrated social media campaign, are designed to drive emotion,” said QUO CEO David Keen. “We know that there is a massive desire to travel again, both locally and internationally. We intend to bring the story back to Phuket.”

Aimed at the international market, the campaign will reach the audiences of the best-known hotels in Phuket. From signage to buttons to long and short videos, each hotel will invite the world to dream, plan, envision, and – above all – to Imagine Phuket with hope and anticipation.

The Real Estate market in Phuket is correctly described as being unlike any other real estate market in the world. A mere 660 meters from the Thai mainland across the Sarasin Bridge, Phuket property market differs even from that of mainland Thailand.

Driven predominantly by foreign investors, Phuket distinguishes itself by the broad mix of nationalities and the types of properties on offer. With an array of projects and areas catering to specific nationalities and price points, it makes for a rather colorful property market.

This section aims to give investors a broad overview of the Phuket real estate sector, including some in-depth analysis of trends within the sector. It looks at prices both on the island and throughout Thailand, and examines the fundamentals which affect both local and broader Thai market prices. It also looks at how the price per square meter can vary in different areas of Phuket, and which properties tend to favor investment/rental income, rather than residential.

Tourism is clearly the key driver of the Phuket real estate sector, and the current low interest rate environment offers an ideal investment opportunity for many foreign buyers. With impressive demand, the island enjoys a buoyant property market which for over two decades has helped to raise wages and create very stable employment for the local population.

Factors Effecting Real Estate Prices in Phuket

It is almost a misnomer to refer to “The Phuket Real Estate Market” because it is not a homogeneous entity. It is divided (and even subdivided) into categories which collectively include a diverse array of buyers. This section aims to address some of the fundamentals which impact the cost of property in Phuket, with an emphasis on the prices being paid by foreigners.

The national statistics suggest that while the Thai property market has slowed slightly over the last two years, it made steady gains over the 10 years up until January 2016. The house price index stumbled until mid-way through 2017, then continued rising into the fourth quarter of 2018. At the time of writing, it is slightly off its recent highs.

Since the beginning of 2008, Thailand’s house price index is up 52.73%. (The impact of the current pullback has been only – 0.29 %.) In simple terms, this represents a 4.79% rise in prices per year. If you are an investor who looks at capital appreciation in terms of a compound annual rate of return, it is a CARR of 3.87%.

Increased Tourism

Before going further, it is important to distinguish between the Phuket property market, and the market in Thailand as a whole (even in Bangkok specifically). Bangkok is the capital city of Thailand, and also the major population centre for the country. With a total population of over 16 million, Greater Bangkok is home to nearly one quarter of the total population of Thailand. Because there are more people concentrated there than anywhere else in the country, the property market tends to move with the economy.

In a strong economy, like we have seen for the last decade, estimates of demand can become optimistic, and over-building can occur. At the time of writing, stories of unsold condominium units in Bangkok are common. But that is Bangkok, not Phuket.

While prices in Phuket may loosely follow the ebb and flow in the rest of Thailand, the demand from foreigners in Phuket sets its real estate sector apart from the country as a whole. And those foreign buyers are almost always introduced to the island by taking a holiday here. Everything tells us tourism in Phuket will continue to grow and so therefore will the real estate sector.

The evolution of visitor to resident sometimes takes a while, but it happens a lot. People fall in love with Thailand, and it gradually becomes their default vacation destination, with more and more holidays being spent here. The love affair with the country is truly complete when they buy or lease a condo or villa in Thailand, and decide to move, work or retire here.

The condominium market has seen especially rapid growth over the last 15 years, and this is due in large part to the increase in tourism. But something else has happened during this period – interest rates were slashed the world over.
Interest Rates

In the wake of the global financial crisis in 2008, interest rates were lowered to encourage spending and investment, and to discourage savings. Since then, the relatively meager income being offered by traditional investments (e.g. bonds) has prompted investors to look elsewhere for higher returns. Banks in some countries, such as Switzerland, are not actually paying depositors, but are instead charging the people who deposit money there. Some offshore banks are also charging any Euro depositors whose balances go above a certain level.

These “negative interest rate” policies have motivated investors to look for alternative sources of income, and the idea of an income producing rental property on a tropical island is naturally quite appealing. The last few years have seen a marked increase in studio and one bedroom units being sold to foreigners, who are in turn renting them out for better yields than a bank, could offer.

Thankfully for foreign buyers, there is one unwelcome result of low interest rates which is not a factor in Thailand. In a low interest rate environment, the cheap cost of borrowing typically sends more people into the real estate market, driving prices higher. This can lead to speculative property bubbles.

In Thailand, however, it is almost impossible for a foreigner to get a mortgage, so virtually all property sales are done for cash. No borrowing means no speculation. No speculation means no bubble. No bubble means no crazy price spikes. Prices in the foreign market have gradually increased in Phuket, but it has been a steady rise, predominantly driven by the natural forces of info

Market Inflation

Modest inflation is the target of almost every central bank, and most consider a “healthy” rate of inflation to be between 2% and 3% per annum.

Inflation pushes up the building costs of each property. Bricks, mortar, roof tiles, household appliances, the fixtures and fittings – even the plants for the garden – are all increasing in price.

Property prices have not “exploded” in Phuket, but no developer can escape some effects of inflation.

Scarcity

Land scarcity (Phuket is an island, after all) will almost certainly have a massive impact on property prices one day, but that day has not come because, for now, there is ample supply of housing units, and it is meeting rather than lagging the demand.

Increased tourism, low interest rates, inflation and scarcity are all reasons why Phuket property prices possibly should be increasing faster, but there are two key factors keeping housing prices in check: Burmese laborers and the Supply-Demand dynamic.

Low Wage Inflation

Most construction in Phuket (in fact, throughout Thailand) utilizes Burmese workers. There is an ample workforce just over the border, and given the employment prospects at home, they are happy to accept work in Thailand. They are also willing to work for lower wages than a Thai worker would demand.

Supply and Demand

Conventional supply-demand dynamics don’t really apply to Phuket. In a classic scenario, when a large number of buyers are looking for properties, but no one is selling, it creates a fast-paced market with prices rising and new developments selling out quickly. When the tables turn, and the market is flooded with properties, sellers begin to find it difficult as prices start to fall. A buyer looking for a great deal usually finds one then.

One of the reasons this cycle repeats itself over time is that periods of weak demand result in fewer units of housing being built, and the resulting scarcity drives prices higher when demand improves. The “boom times,” however, typically see over development, which leads to oversupply, weakening demand and falling prices.

The foreign buyer dynamic has thus far prevented this “boom-bust” scenario from playing out in Phuket. Visitors to Thailand come from all over the world, but the specific nationality of the largest tourist segment keeps changing as individuals from different countries discover Thailand and Phuket.

The buyers of Phuket real estate once came almost exclusively from Europe and America, as well as Thailand’s Asian neighbors (e.g. Malaysia, Singapore, Australia, and New Zealand). But when western currencies began to weaken, Russians discovered Phuket. Russian activity then lessened as the result of a depreciating Ruble, which is when the Chinese discovered Thailand.

Throughout the last three decades, there has not been a protracted decline in demand long enough to send prices significantly lower (as some volatile western markets have experienced), nor has there been over development due to excessive estimates of future demand. Instead, supply has kept pace with demand, and the buyers have been willing to accept modest price increases for new units. Some of these increases have been due to the natural forces of inflation, while the popularity of Phuket property has also allowed developers to demand gradually higher prices.

Economists have a measurement of how much demand changes as a result of price increases, which they call “price elasticity of demand”. Inelastic consumer goods include tobacco, alcohol, and medicine because any price increase has very little impact on demand.

Phuket real estate is neither an addiction nor a lifesaving medication, but it is what economists would call “relatively inelastic”. As long as the inflow of tourists with disposable income continues to keep pace with the supply of housing units, there is no reason for this to change.

Housing Affordability in Phuket

The fact that Phuket has avoided a property bubble, with prices instead being kept in check, has been a major consideration for property investors.

Given the number of foreign buyers who earn their living elsewhere – outside of Phuket, and not necessarily even in Thailand – the traditional relationship between house prices and salaries/wages does not directly impact the foreign market. And with foreigners generally unable to finance a Thai property, the prices in this sector of the market are also not affected by local interest rates, nor are they subject to the “boom and bust” scenarios which can result from excess lending.

What could affect foreign demand in Thailand are the deposit rates being paid in other countries. As discussed, a number of foreign buyers in Phuket are seeking rental returns to compensate for the interest rates not currently being paid by banks. If deposit rates begin to rise, prospective buyers would have to determine whether a property investment is paying enough to justify tying up their cash.Affordability in Phuket’s foreign market is thus down to who has cash and who doesn’t, and as long as the prices in Phuket remain low relative to the countries where the buyer has worked and lived, Phuket will remain an attractive place to buy.

And with house prices in China, Russia, Europe, Australia and North America all significantly higher than the cost of most equivalent properties found in Phuket, the prospects for a buoyant market going forward are quite favorable.

Phuket Property Market “The Local Market”

It is impossible to discuss a property market as dynamic as Phuket’s without a discussion of the local market. While much of the “visible” real estate market on the West Coast targets foreigners, there is a sizeable (and growing) local population in Phuket, and they are also buying.

While the median household wage in Thailand may still be low by western standards, the influx of Burmese workers for low-wage, labor-intensive jobs are a solid indicator of the growing prosperity among Thai households.

A strong economy has created a rising tide in wealth, which has (so to speak) lifted all boats, and the net-worth of most Thai nationals in Phuket continues to climb. That said, most local salaries are not high enough to afford those developments targeted at foreigners, but there are plenty of areas on the island where housing is affordable to someone on a local wage.

For the local population, the traditional ratio of house prices to wages does determine affordability, and any change in this ratio will affect the demand within the local market. But if the price gap between local developments and those targeting foreign buyers becomes too wide, there could be a knock-on effect for “foreign property prices”.

In this way, local prices can act as a quasi-cap on foreign prices.

Confidence and Optimism

In any housing market, confidence is directly correlated to the number of new buyers: the more buyers, the higher the confidence. But what drives confidence?

When it comes to real estate, there are many forces at play, such as supply and demand, affordability compared to income, the flexibility of bank lending, shifting demographics – even a general feeling about the economy as a whole.

The local property market in Phuket will certainly be affected by local business confidence. When business activity levels drop off, most businesses cut costs and put any expansion plans on the back burner. This can potentially have a major effect on employment.

If an individual is worried about their job or the economy in general, they are likely to hold off on buying a property.

If that local business confidence is either causing, or the result of, a drop in tourism, the foreign market will also be affected because fewer holiday makers will mean fewer new foreign buyers.

In a Nutshell

The Thai and Foreign property markets in Phuket are distinct, but the fortunes of both are inextricably tied to the island’s tourism sector.

As the island continues to develop and prosper, so too will the property sector. Phuket is an island, so land is definitely finite. Eventually (who knows when this will be) there will be no more land available for development. Scarcity and inflation are not playing a role at the moment, but longer term these are the “double-whammy” which should support higher prices on the island for years to come.