While the rest of the world is grappling with housing market problems, Phuket, Thailand’s biggest island in the Andaman Sea, seems to be bucking the trend in a big way.
During the past four years, Thailand faced the challenge of two major events with a potential to drive the country into ruin. The 2004 tsunami that devastated the coastal areas of Thailand, including Phuket, and the military coup that ousted a democratically elected government just two years ago, could have led to an economic catastrophe. There was concern that the thriving tourist industry would grind to a halt, bringing down with it the flourishing foreign-owned housing market.
This worry turned out to be unfounded and it seems whatever effects the two events had on the country’s economy, they were short-lived.
A robust real estate market
The Phuket luxury market is not just keeping steady in bad times, it is actually growing by leaps and bounds, according to a May article in Asia Property Report. A booming tourism industry has spurred an interest in buying vacation homes in the country. More than 5 million tourists visited the popular Thai island last year. During the same period, the number of tourists who came to the country as a whole increased by an impressive 22.5 percent.
There was a 32 percent rise in Phuket vacation home transactions during the second half of 2007, according to CB Richard Ellis, Thailand’s largest international property firm. During the same period, the value of these properties jumped by 56 percent, while villa prices doubled from 2000 to 2006.
The resilience of the Phuket real estate market is an indication of investor optimism and enthusiasm about the future of the country despite recent political instability.
Charlotte Filleul, a general manager at CB Richard Ellis, said that foreign investors were indeed nervous last year after the country’s military overthrew the coalition government led by Thailand’s former Prime Minister Thaksin Shinawatra. Most foreign buyers took “a wait and see attitude,” she said. International investors make up more than 90 percent of the luxury property market.
However, once it became clear that the new government didn’t intend to take any measures that would adversely affect the tourist industry and the property market, signs of a slowdown disappeared. “The market is strong….We have an ever increasing level of enquiries and buyers and we have a very positive outlook,” Filleul said.
Some factors that drive the resort property market are obvious. “Luxury resort properties [are] still 50 percent cheaper than the Mediterranean or the Caribbean. Ongoing management costs are very affordable and service is top quality. There is a rapidly growing super yacht and marine industry which supports the real estate market and some of the most beautiful year-round waters in the world,” Filleul said. In addition, Thailand has good international schools, hospitals, fantastic cuisine and a wide range of entertainment options makes it attractive to holidaymakers, she said. The fact that the country’s tourist infrastructure is well developed, much more so than other countries in the area, is a huge help. Thailand is also safe and the people are friendly.
The Phuket luxury property market is also driven by other factors. Phuket’s high tourism season, from November 2007 to March 2008, saw robust luxury condominium sales (from $2,985 to $4,153 per square meter), according to a report by Jones Lang LaSalle, a real estate money management and services firm. The study also pointed out that a majority of the buyers in this market still come from traditional sources such as the U.S., U.K. and Scandinavian countries, but the trend is toward an increasing interest from Russian and Middle Eastern countries, as well as citizens of other Asian countries, as these regions prosper and produce their own wealthy class.
Brazil, Russia, India, China, South Korea, and Vietnam are transforming the world’s travel industry both as destinations and supply of a new generation of well-heeled tourists, according to a May 2008 article in The Economist. More often than not, this new breed of travelers enjoys visiting countries with similar economic backgrounds as their own emerging markets. These new buyers widening the customer base in Phuket are certainly one factor driving up the demand for luxury properties there.
The next few years
The luxury resort market in Phuket is predicted to stay strong, Filleul said. “The quality and positioning of luxury properties is rapidly improving with many properties already matching world class standards. We see buyers and enquiries becoming ever more global and investment coming from all over the world,” she said. To increase international capacity, a new airport extension is planned. A new super yacht marina is already under construction and a private jet service is eyeing the island, not only to start providing services, but also to make Phuket its regional hub. These clearly are not signs of a slowing market.