Phuket Property Market
Residential property developments continue to sprout up around Phuket like spots on a teenager. All over the island, you can see plots of flattened land that developers are preparing for their latest foray into the Phuket housing market. The Phuket property market has boomed to a quite extraordinary degree over the last 20 years. Land and property prices have spiraled almost exponentially. Plots of land near the beach can cost in excess of 20-million baht a rai (1,600 sq. m.). Only 10-years ago, you could purchase such plots for a few hundred thousand baht and buyers were aghast when prices started breaking the 1-million baht a rai barrier. Now, even inland well away from the tourist areas, good plots of land can cost 3-4 million baht a rai.
If the developers acquire a large plot of land then they build a sprawling housing estate. To call them sprawling is actually a bit generous. As land prices have increased, the developers now try to squeeze as many houses as they can into the available space. The roads become narrower and the gaps between the houses smaller until you can almost shake hands with your neighbour from your windows.
If the developers purchase a smaller plot of land then these are ideal for condo developments. Condos have the advantage that you can fit more units on the available land by building up instead of out. They also have the big attraction that foreigners can own them outright instead of needing to find ways circumvent the law against foreign ownership of land, as they have to do when buying a house. Therefore, the condo developments are built very much with the foreign investor in mind.
Currently, there is an explosion of condo projects around Phuket. These condo projects are not only at the usual beach locations such as Patong and Kamala. They are also springing up at the inland areas such as Kathu and Thalang. The cheaper land prices in these areas mean the developers can offer some very attractive packages.
Still one has to wonder with the sheer number of developments coming up and with a worldwide recession looming, is the bubble about to burst. Have the developers finally pushed the saturation of the Phuket housing market beyond what market forces can support. Nobody really knows how bad this recession is going to be but it is certain that the amount of disposable income around the world is going to reduce. The number of tourists visiting Phuket is already greatly down and so the source of potential buyers is drying up. The recent scenes at Bangkok’s airports were seen around the globe and have also shaken consumer confidence in Thailand. On top of that, the current exchange rate on the baht that is no longer favourable to many of the potential foreign buyers.
It seems that demand must reduce at a time when supply is increasing. In a normal market, this would mean reduced prices. However, the Thai market does not always work like that. Thai developers are very reluctant to reduce prices and will often take the line that they would rather wait with empty properties until people are again willing to match the asking price.
This is a potentially difficult position. Anyone currently thinking about purchasing a property in Phuket needs to be a little wary. One of the best ways to get a good property deal is to buy off-plan from the developers. That is you make a down-payment on a property at one of these housing developments before it is built. You then continue to make payments over a 1-2 year period while the property is built and a final payment once it is completed and you move in. The developers like this way of selling property because the buyer is essentially funding the development of the property while they build it. The developers do not need to invest their own money upfront so they are willing to give the purchaser a good deal. You may have to wait a couple of years before you can move in but the price is fixed and is a better deal than if you wait until the development is complete before buying.
The danger here is that this is how some of the developers fund these projects. They rely on buyers purchasing off-plan to finance the development of the property. Imagine if you buy a condo off-plan. You expect them to start building. However, what happens if you are one of only a handful of people who have bought off-plan. Now the developers do not have enough money to start development. So it might be that instead of waiting 2-years for your nice new condo, you end up waiting 4 or 5 years.
In these uncertain times, a little bit of caution is advisable. It might well be that in the next 6-months to a year, we will see the first genuine reduction in Phuket property prices. Thai developers are certainly reluctant to reduce prices but the realities of market forces may force their hand. If you do want to buy off-plan now, it is important to make sure you deal with a proven developer. You want to deal with a developer that has a proven track record of delivering projects and the financial backing to complete development regardless of the number of off-plan purchases.
Related Articles:
Property Ownership Options - An overview of the different options to own a property in Phuket.
How to Buy Property in Phuket - We look at the various methods you can use to find and buy property in Phuket.
How to Rent Property in Phuket - We take a look at the long-term property rental market in Phuket.