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Will Covid-19 really lead to a phuket property ‘Crash’


Potential buyers all want to know how the coronavirus will impact the market for real estate for sale in Phuket. While a prolonged economic downturn will almost certainly lead to lower prices, we actually remain cautiously optimistic and don’t believe any slowdown in Phuket real estate will be as destructive as others have suggested.

Phuket is unique among major global holiday destinations in that foreign buyers are the real drivers of the property market, and the houses and condos are almost exclusively bought for cash. A crash in the property market is almost always caused by a liquidity crunch in the banking sector, but foreigners are not allowed to get mortgages from Thai banks (and most foreign banks will not lend against Thai property). A mortgage/liquidity crisis in the banking sector would therefore have no direct impact on foreign owners in Phuket because there are no mortgages.

At the same time, developers in Phuket predominantly finance construction with off-plan sales (units sold prior to construction). Any developer using advanced sales rather than bank loans to finance their project will not face pressure from the bank to “fire sale” units.

We agree that anyone hunting a bargain will find attractive deals on both villas and condominiums across the island. However, we believe that the cheaper condominiums for sale in Phuket is where most bargains will be found. Those individuals most vulnerable to a “COVID-19 downturn” will be buyers of entry-level condos struggling to make their next payment.

The real estate market in Phuket is not homogenous, and that can even be seen within individual developments. Condominium units are either foreign freehold or Thai freehold, which is one reason for disparities in price. But what may appear on the surface to be an attractive “Covid discount” may just be a Thai freehold unit being sold to a foreigner as a 30-year leasehold. If titled ownership is your goal, please ensure that you are getting a foreign freehold unit.

Foreigners are only allowed to own 49% of the unit area of any given condo development, so fewer than half the total units on the island are foreign freeholds. The idea that the market will therefore be awash in massively discounted luxury condominiums is a little unrealistic.

At least 51% of the unit area of every condominium must be Thai owned but, unlike foreigners, Thai nationals can use mortgages to finance their property. That said, it is more likely that a Thai property investor would be using a mortgage to buy a villa, rather than a condo.

While Thais are active in the condo market in Bangkok, very few of the prime west coast condos in Phuket are owned by Thais (whether or not they have a mortgage). As mentioned above, the Phuket condo market is dominated by foreigners, and this also applies to “the 51%.”

Quite often the management company or developer will continue to own the Thai freehold/foreign leasehold units for the rental income they can generate. If financial circumstances pressure a developer to sell off a few units, the 51/49 ownership rules must still be strictly adhered to. Foreigners hunting a bargain among “the 51%” may either settle for the leasehold, or establish a Thai company to buy Thai freehold units.

But this does not always work out as planned. A Thai company has establishment and running costs which immediately erode the supposed savings. And should the company set-up not be done properly (e.g. you must avoid using nominee shareholders), you and your company could fall afoul of the law.

In addition, the company must also file income and property taxes (and pay both!). Finally, if you’re a company director who lives in the unit, your accommodation is deemed a benefit in kind. You are then liable for income tax on the fair market value of the rent, which is an expense as well as a nuisance.

It is not easy to do things properly, but this creates opportunities for savvy investors. We already know that Thai freehold units cost less than their foreign freehold equivalents, so if a desperate developer, management company, or owner needed to sell, it is possible that those units could hit the market at bargain basement prices.

Just as the foreign owner of a Phuket luxury condo is unlikely to be forced by this economy to sell their unit, the same is similarly improbable for a villa owner. Again, with no borrowing, the only pressure to sell would come from personal finances, and the current downturn is hardly going to bring someone to their knees financially if they had US$500,000 to $1 million in cash to spend on a Phuket villa in the first place.

But what if this “Covid Crisis” leaves the aforementioned Thai national unable to pay the mortgage on their villa? While they may be forced to put the villa up for sale at a discount, a rather small percentage of villas in Phuket’s tourist areas are currently owned/mortgaged by Thai nationals.

Many people remain convinced that we will soon see a plethora of deeply discounted Phuket properties. This may yet transpire, but if taking advantage of these deals means foreigners need to use Thai companies - with all of the associated responsibilities and liabilities - those once attractive discounts may not prove deep enough.


by Thai Residential Phuket Property Guide

This article is from the 2018/2019 Thai Residential Phuket Property Guide. To download the 2019/2020 Guide visit

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