By the book: Not all doom and gloom on Phuket

Construction News

Despite what you hear, there are still many development opportunities in Phuket Photo: Gunther Hagleitner

PHUKET: People who spend time on Phuket or reside here will surely have heard expats grumbling about the island’s property market.

Of course there are some nagging issues: there is a lack of easily accessible information for buyers, similarly and most certainly a lack of regulation and there is no Multiple Listing Service [MLS].

However, while the market here is a little soft with the resale/secondary side yet to get into full swing, we believe it is not all doom and gloom because it does have a bright future ahead with many strengths already in place and many more opportunities on the horizon.

Moreover, property prices in Phuket have been very stable mainly because nearly all foreigners are cash buyers as it is impossible for them to get a mortgage in this country. This greatly reduces the amount of debt in the market.

A large segment of foreign-owned property is made up of retirees and these buyers will not slash prices to sell because the property is part of their retirement plan so they will instead wait for the market to recover. The upshot of this is more stable pricing than in other property markets.

The build quality and standard of materials used has improved considerably over the past decade and now Thailand is producing quality properties to international standards. There is a huge amount of choice on offer to buyers in Phuket covering different types of property, locations and price ranges.

Compared internationally, Thailand’s property transaction taxes are relatively low and there are no municipal taxes (details here)

From the perspective of the Greater Mekong Sub-region, Thailand also has excellent infrastructure. Phuket in particular has good roads, first-class hospitals and international schools and its infrastructure is improving all the time. This is clearly visible as the island becomes increasingly accessible with the expansion of Phuket’s International Airport. Direct flights to Phuket are now available from Europe, the Middle East, Russia, Australia and many other countries within Southeast Asia. More arrivals to Phuket will surely mean more potential property buyers.

An improved lifestyle offered by living in Phuket is a major attraction for many expats. The weather, Thai culture, Thai and international cuisine, beaches, established expat community and sporting activities are some of the main advantages of living in Phuket.

Tourism in Phuket has been booming for a while now with tourist numbers growing year on year. This is supported by a first class hotel industry that provides huge economic benefits for Phuket and with more luxury hotel brands coming online the industry looks set to prosper well into the future.

For those looking to purchase or develop property here in Phuket, or other related business, there are many opportunities.

There are also good value resale options with Siam Real Estate’s Residential Market Report pointing out that resale properties in Phuket are on average priced lower than new properties. This provides opportunities for above average return on investment [ROI] through rental returns and capital gains. New off-plan condo and villa developments also offer interesting deals to those who buy early.

There is also a growing trend of more families using Phuket as a hub to do business throughout the Southeast Asian region. This is supported by the strong infrastructure here and, as previously mentioned, because Phuket is becoming a destination for international-level education, a trend which sees no sign of abating.

Phuket is also benefiting from another regional trend: property in Singapore and Hong Kong is now extremely expensive compared to this island. A lot of property investors in these locations are looking to invest on the island as they see more opportunity here and perhaps have been priced out of their own cities.

Despite what you might hear, Phuket is not yet overdeveloped and there is continuing market demand for new property developments.

Phuket already has a well-established and successful marine industry and, with the support of the government, Phuket’s marine industry is expanding. Much publicized recently was Phuket’s plans to attract more superyachts to the island’s marinas.

As with any business and investment, there are always threats that could derail the best laid plans. It is nearly impossible to predict the next black swan event, even though in hindsight some will say ‘I told you so.’ With this in mind we mention some potential threats to the market below.

Growth in popularity of competing tourist destinations inside Thailand and within the Southeast Asian region could attract tourists at the expense of Phuket. However, they have a lot of catching up to do.

Further strengthening of the Thai baht is unlikely as the US has ended its QE program and is very likely to start increasing interest rates later this year or next year, while Thailand seems set on keeping rates low. This will see funds flow out of Thailand and back to the west, which in turn will see the baht weaken against the US dollar and other major currencies.

Renewal of political instability is currently not an issue as the military government has provided much stability to the Thai economy and political environment. Prior to returning power to the electorate, the NCPO plans to implement political reforms that will provide a stable base for future Thai politics.

Having analyzed the market here we believe that the strengths and opportunities Phuket offers far outweigh the weaknesses and potential threats. Although the market is currently soft, we expect this to be nothing more than the usual economic trend that affects property markets all over the world. Phuket’s brightest days lie ahead of us.