In 2019, an estimated 40 million tourists visited Thailand, with nearly one-third of those spending at least part of their holiday in Phuket. This was a steadily increasing number prior to 2020, and Thailand’s world-famous beaches will fill up again.
How Has Phuket’s Real Estate Market Adapted?
An increase in tourism over the last two decades has been accompanied by a growth in the Phuket real estate market, and while the industry slowed like any other in 2020, property sales have by no means ground to a halt.
It should therefore come as no surprise that people should still be looking at buying a little slice of paradise on an island known as “The Jewel of the Andaman Sea”. But even without visiting the island, investors are still being attracted to Phuket’s luxury freehold condominiums, and they are pleasantly surprised by real estate prices, especially compared with homes in their own countries.
For foreigners, buying a freehold condominium is the easiest way to achieve this dream, as well as being the most straightforward legal approach to property ownership in Thailand.
Why Phuket CondominiumsAre An Attractive Option
When considering Phuket real estate, owning a freehold condominium is a pretty attractive inducement, as throughout Thailand freehold property ownership is offered only through the purchase of condominiums.
Thailand’s laws on land ownership are unambiguous: foreigners may not own land in Thailand but are permitted to own the full freehold title to condominium units. Provided that a condo development maintains at least 51% Thai ownership, foreign nationals may own the remaining 49% – titled in their own name. The foreigner’s ownership is absolute, and the title can even be willed to their descendants.
(The 51% of units reserved for Thai ownership are available to foreigners, but only on a leasehold basis. Leaseholds are limited by Thai law to 30 years, and the unit will depreciate in value over time. It can also be more difficult to sell a leasehold to a new foreign buyer.)
Freehold condominiums, however, are a stress-free, straightforward way for foreigners to invest in the buoyant Phuket real estate market.
The Management Services at Phuket Condominiums
Condominiums have an obvious appeal as a vacation home or a source of rental income. This is thanks in large part to the management services.
It is not uncommon to find full resort management services being provided by third-party professionals (which may even be international hotel groups), although some resorts manage the property themselves. The duties extend far beyond administrative services and include handling the rental services for visitors to the resort.
Many condominiums offer new buyers a guaranteed return, the duration of which varies with each development. This typically comes with a fixed period (usually between 14 and 30 days)during which an owner may take advantage of a “free stay” in their unit. During the period covered by the guaranteed return, the resort manager typically handles all the costs. This means an owner need not concern themselves with any service charges, maintenance costs or bills, and will receive their annual return while enjoying a free vacation at the resort each year.
At the end of the guaranteed period expires (circa 5 years, sometimes longer), an owner may opt to join the resort’s “rental pool” program, in which all income is divided equally between participating owners, who then receive a yield commensurate with the size of their unit.
The Facilities: Another Selling Point for Condos
With each new resort, Phuket’s developers endeavour to outdo not only their competition but even their own most recent efforts.
To appeal to holidaymakers and residents alike, most resorts also offer a variety of lifestyle enhancers and “creature comforts.” It is now commonplace for condos to offer the latest gymnasium equipment, as well as steam rooms, spas, and saunas. There are elegant swimming pools with fountains and other water features, as well as kiddie pools complete with water slides.
There are also some spectacular rooftop settings, with bars, sun decks, and infinity swimming pools, and location permitting, absolutely stunning views of Phuket’s breathtaking coastline.
Some condos are styled like hotels, enjoying landscaped gardens, comfortable reception areas, and a kids club to watch the little ones while the parents relax. It is commonplace to have a choice of restaurants offering a wide variety of international cuisines, and maybe even an onsite beauty parlour or movie theatre.
In other words, Phuket’s resort condominiums offer far more than just the comforts of home.
Hotel Licensed Condominiums in Phuket
A hybrid type of accommodation known as a “condotel” is gaining in popularity in Phuket. A condotel is a hotel-licensed condominium, in which the units are both hotel suites and available for private sale to investors.
Condotels combine foreign freehold ownership in Thailand with the professional management services of a world-class hotel establishment. Because they have both condominium and hotel licenses, condotels comply with both the Condominium Act and the Hotel Act in Thailand and can offer both long-term and short-term rentals.
Condotels are investment properties, so they should not be considered if the buyer intends to move to Phuket, or plans to use their property as a second home or a holiday home. However, they offer world-class services that appeal to guests, making them easy rent. And because they operate as both condos and hotels, there are obvious allures for investors.
The full freehold title in the foreign buyer’s own name is clearly attractive. The importance of this cannot be overstated because the title can also be passed on in a will or a trust. And because there are no restrictions on either long-term or short-term rentals, owners can capitalise on both the robust real estate market in Thailand, as well as the growing tourist trade.
Buyers can also have a vacation stay in their condotel every year. There are typically limits on the duration of this “free stay”, but depending on the resort, it can be up to 4 weeks each year. Any owner wishing to stay longer can pay the prevailing hotel rate to extend their stay by a few nights.
A number of Phuket condominiums have never applied for a hotel license, and are thus technically prohibited from offering rental periods shorter than 30 consecutive days. This restriction means that virtually every vacation rental booked in a conventional condo violates the law.
A hotel licensed condotel is therefore ideal for any foreigner solely interested in the investment potential of a Phuket condo. As condotels grow in popularity with investors, major hotel groups have also taken note. Household names like Sheraton, Radisson, Wyndham (including Ramada), Marriott, Accor Group, Melia, and Club Med have all entered the Phuket real estate market, and others are expected to follow suit.
Where is the Best Place to Buy in Phuket?
With beaches, mountains, marinas, and jungles, the “best place” really depends on what each buyer is looking for.
The best opportunities for investment in Phuket are naturally found in the areas to which tourists flock each year, namely the West Coast. Condos on the West Coast rent out very easily, with by far the highest occupancy rates on the island, especially in the high season.
Most tourists are drawn to the beaches and the sea, thus the condos in the highest demand are the ones in close proximity to the West Coast beaches. If the condo has a sea view, the return on investment is even greater.
The Kathu Valley, in the middle of the island, is where some of the island’s most popular golf courses can be found. Kathu is surrounded by jungle and mountains, but in the relatively flat valley, there are a number of high and low-density estates, offering private pool bungalows and villas. It is generally quieter than the West Coast but lies just 10 minutes from Patong – home to Phuket’s famous nightlife.
The East Coast is also ideal for anyone seeking a quieter vacation property or a family home. Relatively undeveloped, the East Coast is home to Phuket’s marinas, which offer excellent anchorage in the calmer waters. While it may not have all of the amenities, facilities, and sunsets found in the West, the East Coast does offer stunning views across Phang Nga Bay.
Who is Buying in Phuket?
Phuket has always attracted foreigners, who come here to retire, work, or to take advantage of the international schools for their children. Because Phuket is a short flight from most major cities in Asia, foreigners working throughout the region often spend their weekends on the island. Some of them buy property here.
The island has been a lure for all nationalities, but recently Canadian and American investors began to discover Phuket, somewhat reducing the traditional dominance of Australians and Europeans in the Phuket real estate market. Russian and Chinese investors, who began coming to Phuket in large numbers in the last decade, are still major buyers.
Real estate prices around the world, especially in some of the countries mentioned above, make ownership out of reach for many people. The remarkably affordable prices in Phuket Bring buyers to the island.
As airlines open more direct flights to the island, Indians have emerged as an important block of investors in Phuket. As of 2019, Indian tourists only ranked seventh by nationality among all tourists in Phuket. India has a middle-class population of around 500 million, and they live only a few hours by air from Phuket, so expect to see a lot more Indian real estate investors in Phuket in the future.
Does Phuket Real Estate Benefit from Capital Appreciation?
All islands have a finite supply of land. Phuket is obviously no different, and the land within sight of the West Coast beaches is the rarest of all.
Decades of development have seen villages on the West Coast become resort towns, but eventually, there will not be any more land to develop. When that day comes, real estate prices in Phuket will only move in one direction. It may take a few more years, but the impact of land scarcity on prices is already apparent in property values on Phuket’s West Coast.
Scarcity is not the only factor in rising real estate prices. Good old fashioned inflation also impacts the cost of bricks and mortar, labour, landscaping, as well as the furnishings, fixtures, and fittings which complete any home. These natural inflationary forces all add to the rising cost of the property.
Real estate is considered a solid investment in any country (Thailand included), but there is one significant distinction between Phuket and other property markets – real estate is a cash-only market for foreigners in Thailand.
Foreigners are (in almost every instance) prevented from taking out local mortgages, meaning volatility is considerably lower than in most international property markets. The lack of borrowing by foreign investors reduces the chances that Phuket (or Thailand, for that matter) will experience the boom-to-bust scenario found so often in other countries. In fact, before Covid, the market had inched steadily higher by 2-4% per year.
A Trusted Lawyer is a Must
Very few people entertain a real estate purchase without the assistance of a competent lawyer. The right legal representation can be invaluable, and it may even be advisable to engage an experienced lawyer before viewing any properties.
After reaching a decision, a lawyer should conduct due diligence on the prospective property. While this will add to the cost, and it may delay the closing date, the peace of mind it provides pays dividends.
Using a Real Estate Agent in Phuket: Yes or No?
When Buying Property in Phuket(or even considering it), more is needed than just an experienced lawyer, namely, a knowledgeable real estate agent. Any buyer will likely have limited time to spend in Phuket, and the wrong agent could force a pressured or hasty decision. A buyer should always be afforded the time to consider their options.
Thai Residential is one of the island’s most trusted real estate agencies and offers one of the broadest choices of condos for sale in Phuket. Paul Over, a British national and the company’s Senior Sales Director offer this advice: “Do not allow yourself to become a victim. The high-pressure sales techniques used by some agents to market their properties are quite similar to the tactics associated with timeshare sales.
“The minute you begin to feel uncomfortable or under pressure, that’s the time to put your guard up,” Paul cautions. “Buying a condo does not need to be a stressful experience, so try to avoid being put in a position where you’re asked to make a decision on the spot. If you think about anything you’ve ever bought from a high-pressure sale, it probably turned out to be a purchase you regretted straight away.”
Phuket has a number of real estate agencies, but using an agent whom another buyer has recommended can save time while offering peace of mind. The best agents always act in the buyer’s best interests, are even willing to tell buyers something they don’t want to hear. Isn’t it better to get the full, honest picture than a few “snapshots” selected for their superficial appeal?
The tourist industry in Phuket has boomed for decades, and it required a global pandemic to interrupt that trend. As tourist numbers soared, it is hardly a surprise that the real estate sector should be a major beneficiary of this growth.
Both the national and local governments generated enormous levels of revenue from tourism, which in turn allowed them to finance infrastructure projects across the island.
For starters, the road network has been improving every year (even if residents have to suffer delays while the construction is underway). A light railway system may finally be coming to fruition, which would connect the airport in the North to popular tourist destinations in the South. And speaking of the airport, Phuket International Airport has undergone a massive renovation and modernization, nearly doubling the passenger capacity.
These projects (both realized and planned) have succeeded in bringing billions of foreign direct investment dollars to Phuket In the form of new luxury hotels and tourist attractions. Some development continues, but in 2020, Covid halted much of the development in its tracks. The foreign visitors will return to the island, and when that happens, the pace of investment into Phuket will undoubtedly resume.
As mentioned above, Phuket property has never really known the boom-bust cycles which force people to “fire sale” their houses and condos. But the economic slowdown which started in 2020 encouraged some owners to sell, treating investors to some very attractive deals on condos and villas.
Even with such force majeure events, the long-term future for capital appreciation and rental returns from Phuket real estate should be very bright.
This article appeared in Top Wire News.