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Has COVID-19 finally created a buyer’s market in phuket villas

In May we wrote about the likelihood of a “Covid Crash” in Phuket property, and were solidly of the opinion that the fundamentals of the Phuket real estate market have always meant booms and busts were unlikely.


Little has happened since to disprove our earlier assessment, despite the impact of the pandemic on the island’s tourism industry being far more lasting than anyone believed possible. Prices have inched lower, but not dramatically so, and we have not seen widespread “fire sales” of freehold condominiums.

One area where we’ve seen a noticeable change in pricing, however, is the luxury villa market. But does this represent the bottom dropping out of the market, or is there another dynamic at play?

Foreigners sometimes pay in excess of US$1 million cash for a Phuket villa, so they are clearly not bargain hunting, nor are they interested in minute price comparisons between locations. Is the build quality top-notch? Are the fittings, fixtures and appliances of the highest quality? Is the sun deck and pool area spacious, comfortable and relaxing, with great views? These are the things which have always interested villa buyers, and they remain the criteria for virtually anyone buying luxury property around the world.

Our previous article mentioned that people tend to “buy the dream” when searching for a Phuket condo, but this also applies to villas, with one major difference – buyers of dream villas are generally not extending their finances to the same degree that some condo buyers do. And even though most foreign buyers of luxury Phuket villas are probably not struggling financially during the pandemic, they are finding it increasingly difficult to travel here.

Over the last few months we have witnessed an influx of upper-middle-class and high-net-worth Thai nationals entering the market for villas in Phuket, and buying them at what foreigners would consider a steep discount. For Thai buyers, however, these are not price reductions, but rather fair market pricing.

When buying a condominium in Phuket (or anywhere in Thailand, for that matter), there are always two different prices: the Thai Freehold and the Foreign Freehold price. Advertisements almost always list the Thai Freehold price, which is what any Thai national or Thai company will pay to buy the condo. For a condo to be classified as “Foreign Freehold” a supplemental upgrade fee must be paid, which is usually between 300,000 and 500,000 Baht.

Landed property is different, as there is no freehold option for foreigners. To have their dream home, foreigners are required either to sign a long-term lease, to buy in the name of their Thai spouse, or to establish a Thai Company Limited, making the legal owner a Thai entity. This additional step comes with the added expense of forming a Thai company, with legitimate Thai shareholders, then filing annual accounts and paying income taxes. For someone investing hundreds of thousands of dollars in their dream home, this last step is a drop in the bucket.

Everyone is willing to pay more for something they covet, especially a plot of land in a tropical country. But just as Thai nationals have no need of the Foreign Freehold upgrade for condos, they are also not obliged to pay a price which developers could only command by catering to the dreams of foreigners. Given the strong demand, these developers have long enjoyed a certain “cushion” which has allowed them be more flexible in case the real estate market softens.

A Thai national obviously has no legal restrictions when buying a Phuket luxury villa, but up until now they have been competing with a steady stream of overseas buyers interested in the same properties. With foreigners now seeing their ability to fly around the world greatly restricted, however, the target buyers of villas in Phuket have become Thais, foreigners with Thai spouses, and high-net-worth foreigners already living in Thailand. Without the dreams of overseas buyers to elevate the price of a villa, prices have begun to revert to levels which Thailand residents would consider fair, or certainly fairer, value.

The increasing number of Thai nationals entering the Phuket condo market creates a different dynamic: more units are being sold without freehold upgrades, but the volume of sales means developers are under less pressure to lower prices. We have also seen foreign buyers continuing to invest in Phuket condos this year with nothing more than a “virtual tour.” There are some good bargains, but we have hardly witnessed any “fire sales.”

While the Covid-19 pandemic is impacting luxury villa prices on the island, it is not because foreign buyers have lost interest, but because they simply can’t get to Phuket. Being a much larger financial commitment, villas require an extremely motivated buyer of means to make that decision over Skype, WhatsApp or WeChat. Any foreigner with a trusted lawyer and real estate agent on the island, who is willing to buy remotely, can find some attractive prices on Phuket villas right now.

There are certainly attractive prices to be found on condos, but as the Phuket luxury villa market sees a larger influx of Thai buyers actively looking for great deals, this is where we are most likely to experience a real shift in the dynamics of buyers during the Covid era.

by Thai Residential Phuket Property Guide
This article is from the Thai Residential Phuket Property Guide.
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