Potential Real Estate Bubble in Phuket Thailand

Potential Real Estate Bubble in Phuket Thailand

Lately, one question I hear repeatedly is whether Phuket is facing a real estate bubble. 

The most infamous example of a real estate bubble in recent years is the 2007 subprime mortgage crisis in the United States. Other sectors have experienced similar phenomena, like the dot-com bust in 2000 and the cryptocurrency crash in 2018.

Real estate markets, particularly in Western countries, are prone to bubbles due to liquidity issues. When cash is scarce, financing becomes more risky and leveraged, widening the gap of potential risk and leading to possible market crashes.

Phuket’s real estate market is distinctive, characterized by several key factors:

• Transactions are predominantly cash-based.
• The market value of resort properties vastly exceeds that of domestic housing.
• Thai buyers who use financing are a minority in this market.
• Project development is tied closely to actual sales, minimizing the risk of developer defaults.
• The diverse geographic origins of buyers—spanning multiple countries and currencies—dilutes single-market risk.

Currently, Phuket is seeing increased activity in two main areas: condominiums and villas. The condominium market has shifted with a surge in foreign buyers who are well-capitalized, reducing the likelihood of high default rates similar to those of the past. However, there is growing speculation with some investors aiming to flip properties before completion, indicating a highly speculative phase in the market for large-scale, low-priced condos.

In contrast, the villa market, particularly high-end resort homes, has seen a significant boost. The pandemic accelerated migration to Phuket due to urban flight, remote work trends, and a heightened focus on lifestyle quality. Coupled with geopolitical tensions in Eastern Europe, Phuket has witnessed an influx of end-users shifting from its traditional retirement and second home market.

Phuket’s allure as a winter haven for Westerners, supported by Thailand’s long-term visa programs, has bolstered demand. The introduction of Thailand Elite visas, retirement schemes, and international education visas for families has further attracted real estate investors.

Eastern European buyers, especially Russians, have emerged as a dominant force in Phuket’s real estate market in recent years. With increasing restrictions in the West and domestic economic instability, Russians see Phuket as a secure investment destination. For many, real estate in Phuket has become a safe haven for their assets.

Phuket’s real estate growth is now challenging tourism as a primary economic driver. In the Greater Bangtao area alone—covering Cherngtalay, Laguna, and Layan—over 20,000 residential units are either under construction or planned. Investors in this segment are typically affluent, paying cash and focusing on premium properties with a long-term outlook.

While predicting global geopolitical developments is complex, it’s clear that over the next 3-5 years, the market will experience fluctuations. With minimal exposure to lending risks and a stable base of buyers, a significant market crash seems unlikely.

History shows that real estate markets ebb and flow like ocean tides. After reaching a peak, there may be some froth and niche opportunities. In the resort property sector, below-market sales are often driven by personal issues such as financial problems or life changes, so broad market movements are unlikely.

As in the past, we can expect demand to stabilize, secondary markets to grow, and competition among new developments to increase. This could be a sensible outlook for the low season in 2024.

Ultimately, despite global upheavals, Phuket’s status as a secure investment destination may continue to attract diverse buyers. The resurgence of China and other geopolitical events will likely bring more variety to Phuket’s real estate market. Whether a bubble is forming is a question best left for individual interpretation.

Source:  Bill Barnett at c9 Hotelworks:  https://www.c9hotelworks.com/news/inside-the-numbers-the-potential-of-a-phuket-property-bubble