IS PHUKET REAL ESTATE TOO EXPENSIVE?
The discussion about the value of Real estate in Phuket has been going on for a few years already. Some found it to be overpriced already some years ago and expected ‘the bubble’ to burst at any given time whilst other found that they could have a real nice property here for not even a third of what it would cost them in their own country.
So the question whether Phuket Property is too expensive is not an easy one to answer.
Phuket’s Real Estate market is not something that can easily be analyzed. One needs to consider the various components and needs to look at all the different parts of information. As generally known, the majority of buyers in the mid to upper market are pre-dominantly foreigners. Research has shown that this is about 70%.
Looking a bit more in detail you can split this up in to those who use the property as their full time residence, and others that use it as a holiday home, second residence or as an investment property which is most of the times located in a resort style managed estate with rental management or rented through estate agents. Almost all of these properties were purchased on a cash basis.
Although Phuket has evolved a lot over the past 5-6 years, it remains a developing market.
Looking back a few years to 2002 when the market started an upward cycle of double digit year on year, capital appreciation, favorable supply/demand ratios and prices have continued to increase significantly each year. Looking back a bit closer, one can see that the current slowdown did not start with the sub prime. It started 2 years before that with the political instability, the proposed changes to the ‘Foreign Business Act’ and a huge increase in supply of new developments in all price ranges.
During these past two years certain segments have continued to do well. The luxury high end market has taken advantage of the lack of availability whilst the lower end up to 4 million Baht has seen some speculative buyers, mostly Thai nationals who have access to mortgages from the banks.
So far, also in these very turbulent times, prices for property in Phuket are holding on. We did see some private property owners giving some discount and also some smaller developments have offered some incentives like free furniture packages, payment terms spread over a few years, up to 50% financing over 3-5 years… Mostly this has been the case for completed or far advanced developments where only some units remained available and where the developer wanted to cash in and exit the investment.
An often overlooked factor is the exchange rates which are important when foreign buyers bring their money from overseas.
Over the past year or so, the Thai Baht has gained about 15% against most major currencies and it is expected to gain another 5%. This means that overseas buyers lose about 20% of the value of their money compared to last year when they buy property in Phuket now. Over the past high season, although sales were down from the same period last year, we could still see a lot of interest from people looking to purchase a property in Phuket. Most of them are postponing their decision until the exchange rates become more favorable again.
As pointed out by many in the past, the key to growing Phuket’s Real Estate market remains in the availability of financing, which would allow it to compete with the more developed markets. This, together with more favorable foreign ownership regulations would make a huge difference and be a big support at times like this when the market is a bit slow.
While lowering prices could be beneficial in the short term, long term growth can only be achieved if stability and investor’s confidence are maintained.
