Phuket Property market

Understanding the Phuket Property Market Dynamics
The Phuket property market, along with other resort destinations, such as Koh Samui, stand out as distinct from Thailand’s broader real estate landscape, drawing vitality from international demand closely linked to its thriving tourism sector. Unlike other regions, many foreign investors in Phuket are typically introduced to the market following a vacation, though the actual purchase might occur months later. Rarely do international buyers invest without prior visits, highlighting the importance of first-hand experience in influencing investment decisions.

This correlation with tourism is clearly demonstrated by the revitalisation of Phuket’s real estate activities, following the uptick in post-pandemic tourism, reopening of borders to Chinese tourists and increasing Russian visitors and investment, following the war in Ukraine. Over the past two years, there has been a significant increase in activity, especially in the northern Cherng Talay area, which has emerged as a centre for extensive property developments. The scale of development in Cherng Talay is quite remarkable. New projects are rapidly emerging across the region, from Bang Jo to the areas around Blue Tree and Pasak, as well as Boat Avenue, Laguna, Layan, and extending to the previously secluded Manik area. These developments not only offer a wide range of options for potential buyers but also reach further inland, providing more affordable housing near top international schools—an advantage for families seeking both value and convenience.

The influx of Russian investors, spurred by geopolitical tensions and seeking safe havens for their capital, has very significantly buoyed the market. This, coupled with Thai government initiatives like new, extended visa programs – (see https://ltr.boi.go.th/), has broadened the appeal of Phuket’s property market. The availability of off-plan properties allows buyers to choose from a diverse array of new units tailored to various tastes and preferences, indicating a robust and forward-looking market poised for continued growth.

Impact of Global Events and Local Developments on Market Trends
The post-COVID-19 boom has notably revitalised interest in Phuket’s property sector, leading to a record-breaking increase in villa sales. CBRE highlighted that villa sales reached an all-time high in 2023, with over 400 units sold—quadrupling the average annual sales seen in previous years. Equivalent records were also set for the Phuket condominium market, with sales soaring to over 3,000 units. However, it should be highlighted that the period from early 2020 until late 2022 marked some of the lowest sales in the Phuket property market’s history. This likely led to a significant build up of deferred demand, as numerous potential buyers aiming to purchase properties in Phuket were unable to do so due to travel restrictions. While a few managed to make purchases remotely, the release of this pent-up demand became apparent with the restoration of normalcy, triggering a notable surge in property transactions.

As noted by Ms. Prakaipeth Meechoosarn of CBRE (Thailand), the Sandbox program initiated in 2021, which permitted foreign tourists to visit Phuket without quarantining, significantly contributed to this uptick by boosting demand. This surge markedly escalated the demand for upscale properties, including villas and condominiums, while simultaneously highlighting a shortfall in supply. 2022 saw a significant uptick in villa sales. According to the Real Estate Information Center (REIC), villa sales increased more than fourfold from the previous year, with a remarkable spike in the latter half of 2022. The condominium market also showed robust growth, with transfers significantly exceeding pre-pandemic levels, primarily driven by Russian and Chinese investors, as noted by industry experts from Knight Frank Thailand. Consequently, this prompted numerous developers to initiate new projects, peaking in 2023. Notably, Russian investors, who represented 70% of the buyers, showed a preference for purchasing luxury villas priced between 20 to 26 million THB, as well as condominiums ranging from 5 to 10 million THB, as reported by the Bangkok Post. A deciding factor for these investors was the proximity to international schools and essential amenities, which are critical for those considering relocation.

In contrast, the Chinese represented the second-largest group of buyers, predominantly purchasing holiday homes and properties as rental investments. Following them, the Europeans formed the third-largest buyer demographic in 2023, with a particular interest in spacious holiday homes that also serve the rental market.

The continued influx of foreign investment, particularly from Russian nationals seeking immediate residential options due to increased European travel restrictions, underscores Phuket’s appeal not only as a vacation destination but also as a viable residential market. The recent inauguration of a Russian consulate in Phuket in July 2023 further cements the island’s strategic importance to this demographic, highlighting the dual appeal of its tropical allure and favourable investment conditions.

This heightened demand has spurred developers to expand their projects beyond the prime areas to cater to the burgeoning market, with smaller developments also contributing to the island’s growth. However, this rapid development pace raises sustainability concerns, especially in the Cherng Talay area, which is experiencing substantial urbanisation within its modest 14.3 square miles. Issues such as rising land prices, potential traffic congestion due to construction, and perennial water scarcity exacerbated by below-average rainfall are becoming increasingly pressing. Efforts to mitigate these challenges include drilling new groundwater wells and plans for a pipeline from Phang Nga province, aiming to secure long-term water solutions for the island.

Phuket as a Hub for Digital Nomads
Phuket has carved a niche for itself as a premier destination for affluent digital nomads, a trend accelerated by the introduction of extended visa options that cater to this modern workforce. The island’s idyllic climate, advanced infrastructure, and top-tier educational institutions make it an attractive locale not only for leisure but also for professionals who are free from the constraints of traditional office spaces. These professionals are drawn to the island’s high-quality co-working spaces, reliable internet connectivity, excellent amenities, and a variety of recreational activities, which make balancing work and life in Phuket an appealing prospect. The positive impact of digital nomads on the Phuket property market is tangible. As the global work landscape evolves, Phuket continually reinforces its reputation as an ideal spot for those looking to merge productivity with relaxation. This demographic’s growing interest has directly influenced property transactions in the region, with many seeking residences that serve both as a home and a remote workspace. This trend underscores Phuket’s strategic positioning not merely as a tourist hotspot but also as a global work hub.

Escalating Property Prices in Phuket
The rising property prices in Phuket reflect a significant economic trend driven by multiple factors, including a notable increase in land costs and a shortage in supply amidst robust demand. Data from the Real Estate Information Center (REIC) indicated a 24.5% year-on-year decline in available housing in the latter half of 2022, highlighting the tightening market conditions. Additionally, according to Knight Frank Thailand, land prices in Phuket in 2023 soared to more than 14 million THB per rai, representing a 20-30% increase from the previous rates of around 10 million THB per rai.
This surge in land and property prices has also been reflected in the cost of villas and condominiums. For instance, while some new condominiums were available in 2023 for around 100,000 baht per square meter, others have seen prices doubling—a phenomenon that was nearly unimaginable just a couple of years ago. This price inflation is partly due to the market rebound post-COVID, but it has now clearly surpassed pre-pandemic levels. Real estate agents and stakeholders in the Phuket property scene agree that the current spike in demand and pricing, especially for prime new builds, is unprecedented and indicative of a long-term bullish market. The luxury villa segment, in particular, witnesses the highest demand, with real estate agents observing substantial price increases across the board. These trends are a testament to the strong market fundamentals and the high level of investor confidence in Phuket’s real estate potential, making it a lucrative area for investment and property development.

Interplay Between Global Interest Rates and the Phuket Property Market
The relationship between global interest rates and the Phuket property market is a critical aspect to consider. While rising global interest rates typically dampen enthusiasm in many property markets due to increased borrowing costs, the Phuket market remains resilient. This resilience is largely due to its unique cash transaction model, as foreign investors are generally unable to secure mortgages from Thai lenders. This results in a predominance of cash-based acquisitions, with the intricacies of foreign ownership through Thai companies further complicating access to financing.

Despite these challenges, the Phuket property market continues to thrive. The ongoing low global interest rates have encouraged some investors to switch assets from low-yielding bank deposits to more lucrative property investments. Phuket, with its appeal as a tropical haven, further attracts investment, contributing to a noticeable increase in demand for studio and one-bedroom properties. These units are particularly sought after for their superior rental yields compared to traditional bank savings, making them attractive investment opportunities. The potential for high rental earnings and asset appreciation continues to draw significant international interest, driving the market’s growth and potential for property value increases.

Shift in Market Demand to the Luxury Sector
A pronounced shift in the Phuket property market has been observed, with a growing pivot towards the mid to high-end segments. This trend, highlighted by sources like Business Insider, marks a stark contrast to pre-pandemic patterns, which focused predominantly on entry-level price brackets. The emergence of buyers who are less price-sensitive has shifted demand notably towards the luxury sector. In this domain, market dynamics have transitioned to a seller’s advantage, eliminating the frequent need for price reductions that were common before. This current trend is not only a reversal from the previously dominant affordable entry-level market but also a move towards growing interest in both midscale and upscale luxury segments. Developers are now responding to this increased demand by venturing into constructing luxury villas on terrains previously considered unsuitable, thereby expanding the geography of the Phuket property market. These new luxury developments are strategically placed, ensuring that despite Phuket’s compact size, residents are never more than a 30-minute drive from pristine beaches and the scenic Andaman coast, enhancing the attractiveness of these properties.

Lands once dedicated to agriculture are being transformed into upscale housing projects, catering to a clientele that values exclusivity and premium living spaces. This expansion into luxury housing is driven by the continuous influx of high-net-worth individuals and investors looking for high-quality, luxurious living options that offer both lifestyle perks and investment returns.

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