Looking at the period since the island gained air connectivity when international flights started in 1984, the Phuket property market has consistently demonstrated impressive growth and resilience, posting record sales figures for all property types, villas, houses, and condominiums, in 2023. As the borders opened up after the pandemic, tourism in Phuket surged back remarkably quickly, which was the catalyst for the strong recovery of the island’s real estate market. Over the last few years, the villa and houses sector in particular has performed very well, increasing its total share of market transactions. Post-pandemic, the profile of property buyers for Phuket evolved significantly. A growing number of investors are now seeking villas as semi-permanent or permanent residences, drawn to their space and privacy, generally more suited to families and long-term living than condos.
As a tourist-led market, Phuket real estate is dominated by foreign investors, who account for the vast majority of property purchases. Most of these overseas buyers are cash purchasers, as non-Thai nationals are unable to secure mortgages for properties in Thailand. With decoupling from interest rate rises, this cash-driven market, dominated by demand from foreign buyers, provides a layer of insulation from both global and domestic economic downturns, enhancing its overall stability.
Phuket offers a unique combination of a gorgeous tropical island setting, modern conveniences and facilities, and exceptional investment possibilities to be found in its strong, diverse, and vibrant real estate market. However, the noticeably strong performance of its property market does not mitigate the risk of investing in a villa, house, or condominium in Phuket. In this article we focus on the property types of villas and houses, highlighting 9 important mistakes buyers need to avoid.
1. Not Defining Your Reasons for Buying a Villa or House in Phuket
Having a good understanding of your primary motivation for buying a Phuket villa and always keeping this at the forefront of your mind and decision-making process is one of the most important first steps. Are you seeking a holiday retreat to enjoy with family and friends, an investment property, or a place to live? You may well be seeking a combination of all of these, but clearly defining your priorities is essential to make the right choices for your property purchase. For example, if your purchase is for personal use, factors such as proximity to international schools, shopping centres, and medical facilities might outweigh being near the coast. Conversely, if you are mainly for investment, how near you are to the beach or the quality of the view from your villa are likely to be important considerations. Furthermore, if the primary goal is investment, the buyer needs to detach their personal preferences from the choice of property.
2. Assuming You Can Get a Mortgage
One of the most common misconceptions among foreign buyers is assuming they can secure a mortgage to purchase a villa in Thailand. Unlike many other countries, Thailand is predominantly a cash market for overseas buyers, largely because non-Thai nationals cannot register the freehold of land in their name and the maximum lease term is 30 years. When buying a villa, our house in Phuket, no mortgage finance will be available to the overseas investor. Instead, they need to secure the funds in their own country of residence and bring them into Thailand or use money already held in Thailand. In some cases, it may be possible for the buyer to borrow money outside of Thailand for their villa purchase in Phuket, but the key point is that this funding will not be secured against the property. The only case in which an overseas buyer of a villa house in Phuket will be able to get financing from a Thai lender is on a very rare occasion when the developer offers their own in-house financing, but this is very unusual, and the lending term is typically short, up to around 5 years.
3. Lack of Time Spent in Phuket
Phuket offers diverse locations, each with unique characteristics, amenities, and investment potential. A common mistake is trying to decide on the most suitable areas just by online research, without spending adequate time on the island. Online research is extremely useful when researching the performance of the Phuket property market, or finding the best agent, but in terms of really getting to know the different areas, there is no substitute for visiting Phuket and exploring different neighbourhoods in person. Whether you prioritise proximity to beaches, vibrant nightlife, or tranquil settings, understanding the nuances of each area is key to making an informed decision you won’t regret that aligns with your lifestyle and investment goals.
4. Not Understanding Villa and House Ownership Structures
Understanding the ownership structures available for villas in Phuket is critical. Foreign buyers cannot directly own land but can either lease the land for a maximum of 30 years or purchase it through a corporate structure. Each option has implications that require careful consideration. A corporate holding structure must be set up correctly with an experienced and reputable lawyer to avoid legal risks. This is more important than ever as the Thai government has intensified crackdowns on illegal company holding structures used by foreigners to acquire freehold villas and houses. To be compliant with the law in Thailand, the company must be created as a business to generate income, for example, by renting the property, and not purely a holding structure used to buy the villa. The Thai shareholders, who must have a minimum stake of 51%, must also have a genuine interest in the company and not be purely nominees.
Regarding leasehold ownership tenure, developers often market villas as having lease renewals of additional 30-year periods included in the initial sales price. However, prospective villa buyers need to be fully aware of the risk that any lease renewal may not be honoured. For example, the land may be sold, and the new owner of the freehold could decide not to honour any lease renewals included in the initial sales contract. Whether or not a lease renewal included as part of the initial purchase is enforceable is a grey area under Thai law with little precedent. One way to improve the likelihood of a lease being renewed is for the villa owners in a project to each have shares in a company that owns the freehold. This setup, known as a protected leasehold structure, relies on the correct long-term administration of the company holding the freehold.
For those uncomfortable with the complexities and costs of a corporate holding structure, or the limitations of a maximum lease period of 30 years, freehold condominiums, which offer perpetual ownership directly in the foreign buyer’s name, can offer a more straightforward and secure alternative.
5. Being Unfamiliar with Property Buying Process for Phuket
Engaging a lawyer early in the process is highly advisable, even before committing to a property. A reputable lawyer will explain ownership options and conduct thorough due diligence on the property. This includes verifying the title deed, servitude, building permit, and adherence to construction regulations, and, if the property is sold with a company, performing due diligence on the company as well. Some law firms may offer basic advice on key points such as ownership structures free of charge before being officially engaged, but this will depend on the lawyer.
When you’re ready to make an offer, negotiations are conducted through your property agent. Price flexibility is typically greater when buying a resale villa compared to an off-plan property from a developer. This is because off-plan properties usually have discounts built into the advertised price, leaving less room for negotiation. Once a price is agreed upon, a reservation agreement is signed, and a holding deposit is paid. This takes the villa off the market for the period specified in the agreement, which is usually 30 days but may be up to a few months. During this period, your appointed lawyer will carry out the due diligence process and contract work. If you are buying a new freehold villa, within the reservation period, after successful due diligence, your lawyer will also need to set up a carefully structured and fully compliant company to hold the freehold.
At the end of the reservation period, assuming the due diligence report does not reveal any legal reason not to proceed, the main contracts are signed. For completed villas, the balance is typically paid in full at the time of signing contracts. For off-plan villas, the buyer signs both the sales and purchase agreement and the construction agreement at this stage and makes the first payment as outlined in the payment schedule, which is tied to construction milestones. If you are buying a freehold villa or house and taking over the existing company, a share transfer agreement would also be signed.
A final key point to note is that in Phuket, and Thailand in general, the vendor is responsible for paying the agency sales commission. This means buyers do not need to include this expense in their budget.
6. Failing to Account for All Closing Costs
A common mistake is underestimating the full cost of acquiring a villa. Alongside the purchase price, buyers should budget for government transfer fees, taxes, legal fees, and, if applicable, the cost of setting up a Thai company for ownership or costs of lease registration. For freehold purchases, government transfer fees and taxes can amount to around 6% of the declared price, depending on the transaction. Additionally, buyers should consider the cost of getting the property into a turnkey state, such as furnishing the villa or preparing it for rental use. Having a clear breakdown of all costs allows a buyer to have full transparency about what they can actually afford to pay for the villa.
7. Not Planning an Exit Strategy
Planning your exit strategy in advance is crucial. Factors such as the location, price point, and property type can significantly influence the ease of resale. Properties in high-demand areas with limited supply tend to have better liquidity, while mid-market and affordable luxury villas often appeal to a broader audience. Another important consideration is the value declared at the land office when you purchase the property. If the value is declared at the minimum allowable amount (under Thai law, each property has a minimum amount that may be declared for it when it is sold, which is usually considerably less than its market value), future resale could incur significant capital gains tax if the new buyer insists on declaring the market value. A well-thought-out exit strategy ensures you’re better prepared for eventual resale, both logistically and financially.
8. Neglecting Buyer’s Due Diligence
While engaging a lawyer to conduct legal due diligence is essential, buyers must also perform their own checks. For example, if you’re purchasing within a community development, assess whether the communal aspects are well-managed and maintained. Also, you need to ensure that any communal charges are correctly set in line with market values and cannot unreasonably escalate. Poorly managed projects can lead to depreciating property values and make resale difficult. When buying an off-plan villa, or one under construction, ensure the developer has a track record of delivering quality projects. Visiting completed developments by the same developer can provide valuable insights into build quality and finishing standards.
9. Not Understanding the Property Running Costs
As there are many points to consider, an understandable mistake is failing to fully appreciate the ongoing costs of owning a villa in Phuket. For properties within a community, compulsory estate charges, also known as maintenance fees, cover communal infrastructure, security, and sometimes private pool and garden maintenance. If you’re purchasing a private villa, i.e., stand-alone, not in a community, unless you do this yourself, you will need to pay for independent pool and garden maintenance services. Additionally, if the property is held through a Thai company, there will be costs for annual accounts, legal compliance, and any dividends or financial compensation owed to Thai shareholders. For those planning to rent their villa, rental management fees or commissions to platforms like Airbnb should also be factored into the overall cost of ownership.
Villa buyers also need to be aware of the cost of maintaining the property. All villas and houses require regular upkeep to maintain their value, but properties constructed with a lot of wood have higher maintenance costs in a tropical climate.
Buying a villa in Phuket can be a rewarding investment, but it requires careful planning and a thorough understanding of the market and details of the acquisition process that are specific to Thailand and Phuket. By avoiding the common mistakes we have outlined above, you can make a more informed decision and enjoy the rewards of owning a property in one of Asia’s most sought-after destinations.
