Search WINDOW on Phuket

Phuket Property after COVID

Will We Ever See the Phuket Real Estate Market Return to Pre-Covid Condition

In the Spring of 2020, as uncertainty was gripping the tourism and property industries in Phuket, we began a series of articles explaining why there would be no “Covid Crash” in Phuket property.

We pointed out that the dominant buyers were foreigners who paid cash, meaning there would be no mortgage payments to miss during the pandemic. Furthermore, there was a low probability that such owners would be so cash-strapped as to be forced into a sale. We also wrote about the likelihood that new condo developments would see construction and sales suspended, rather than “fire sales” of outstanding units to finish the project at any cost.

Having correctly noted last year that the lower-priced new build condominiums would be impacted the most by the economic slowdown, we recently reaffirmed that assessment by pointing out how buoyant the Phuket real estate sector truly has remained for resale condos and luxury pool villas.

We were not alone in this understanding of the market. The business model for new condos depended on “volume tourism”, and most budget-priced condos were sold to holiday makers as an investment. But the average target buyer of these units today has less liquid capital than they did in January, 2020, and countries like Russia and China have enacted stricter exchange controls, making it more difficult for buyers to get their money out.

Many lower-priced condo projects throughout the island did, as we correctly projected, see development temporarily abandoned, and are now awaiting with bated breath the resurrection of the Phuket tourist industry. But there is no guarantee that we will immediately return to the volume tourism needed to drive the rental yields on these units.

Anyone living in Phuket has certainly seen signs of life returning to the island over the last couple of months, especially along the west coast. While a return to the “old normal” will no doubt be welcomed by both locals and foreign residents alike, the numbers of returning tourists do not yet warrant the development needed to finish those projects currently sitting idle.

With entry requirements easing for vaccinated tourists, Phuket is certainly heading in the right direction, however, the dynamics of the real estate sector in the years ahead may see some changes compared with the pre-pandemic market.

Environmental considerations are one reason we may see a “new normal”. Since the initial lockdown and subsequent scarcity of tourists, Phuket’s environment has flourished.
Flora and fauna are returning to areas once trampled underfoot, the seas are cleaner and a variety of marine life not seen for years has returned. In the absence of sunbathers, there are turtles nesting on Phuket’s southern beaches for the first time in two decades.

As detailed in a National Geographic article earlier in the year, Phuket has been a victim of “extractive tourism” in recent decades, with the vast number of visitors offering a comparatively stunted benefit to the local economy. Instead, the sheer volume of tourists has in many ways drained the island of its natural beauty.

Many people will be familiar with the United Nation’s goals for Sustainable Development and if these are implemented moving forward, we are likely to see an even greater focus on safeguarding Phuket’s environment.

Most people would agree that some kind of eco-friendly, more sustainable approach is needed to simultaneously prosper and protect the island’s biodiversity. Moving forward, this may be accomplished by an emphasis on quality tourism rather than mass tourism.

This begs the questions: what will tourism in Phuket look like in the years ahead, and what would be the knock-on effect on the real estate sector?

Nearly all residents have been affected in some way by the pandemic, and are looking forward to simple pleasures like the reopening of their favorite restaurant or bar. That said, everyone acknowledges and appreciates the rejuvenated environment, and the pandemic has shown that even minor changes can make a huge difference.

The question moving forward is whether the island can strike that perfect balance between economic prosperity and sustainable tourism – between local employment and living standards and maintaining the natural beauty that attracted people to Phuket in the first place.

Up until 2020, Thailand saw plane loads of tourists arrive every day with their vacation costs largely paid for at home. This type of extractive tourism not only takes its toll on the environment, but it leaves less money in the country.

The government seems intent to use the Covid situation as an opportunity to change this dynamic.

There is talk of a new 10-year visa to attract high net worth individuals, and this visa would include the prospect of owning landed property. Target groups include highly skilled professionals, wealthy retirees, investors and digital nomads. There is an ambitious target of up to one million affluent individuals applying for this visa each year.

It is worth pointing out that a similar option already exists for owning landed property for those making a Prescribed Investment of at least 40 million THB into approved government securities. But this new 10-year visa would cover not just the key investor, but also other family members. In addition, it is proposed that it could also incorporate a work permit with attractive tax rates.

These are all just ideas at this stage – nothing is cast in stone – but it is clear that the government wants wealthy nomads to settle in Thailand. The proposed scheme requires the individual to show assets valued at least US$1 million, and to invest a minimum of US$500,000 into the economy. They must also demonstrate an income of at least US$80,000 per annum.

Retirees over the age of 50 are also being targeted, and would need to invest US$250,000 in government securities and show an income of US$40,000 per annum.

If this all transpires, and the visa program proves to be successful, we will see a huge shift from low-priced investment condominiums to more luxurious condos and high-end villas.

And thus we come full circle – the high end and luxury markets, which we have already noted remain particularly buoyant, would only be strengthened further by a successful visa implementation for wealthy foreigners who are allowed to own landed property. This would reduce the demand for low-end condos on the island, which would by extension reduce the available accommodation for large-scale extractive tourism.

The tag line for environmentally friendly tourism is “Take only photos, leave only footprints.” But if Phuket does return to this tourism model (one which existed here in the 1980s and 90s), the tourists who visit the island would be leaving something else – dollars . . . and lots of them.