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Trees Do Not Grow To The Sky!

Many people have noticed that real estate prices across the island have been rising of late.


May 2023

Many people have noticed that real estate prices across the island have been rising of late. In this article we discuss whether prices can keep going up forever, and how demand and supply dictate prices and market buoyancy?

We have pointed out (more than once) on these pages that prices of property on the island have historically avoided the boom-bust scenarios normally seen in highly leveraged markets around the world. The dynamics of Phuket’s “cash only” real estate market are undoubtedly very different to cyclical markets elsewhere in the world, where small down payments are coupled with banks financing the rest.

Real estate prices here tend to stagnate, rather than crash, and even the low interest rates of the last two decades did not cause an outsized explosion in prices. What we are experiencing today, however, can hardly be described as anything less than a boom.

Only time will tell if we are forced to eat those words, but we are certainly witnessing a mild buying frenzy. Increasing land values and a lack of inventory have unleashed a pent-up demand on the island over the last 12 months, and the impressive number of new villa projects on the island are testament to this.

Perhaps the market is only playing catch-up, and prices are just finding the levels they should have gradually approached during the drudgery of the pandemic. That said, some prices in high-demand areas (emphasis on “high-demand”) continue to rise, well in excess of what we’ve experienced over the last few decades. And what people want are high-end contemporary villas, with every modern convenience, which developers are racing to provide for them.

In any competitive market, the demand and supply dynamics can paint us a reasonably vivid portrait of how willing the active buyers are to buy, and motivated owners to sell.

No transaction can take place until both parties see eye to eye, and the agreed sales price is a reflection of each side’s inclination to proceed. The odd buyer will “buy the dream” of living on a tropical island, even if it means overpaying for a property. Likewise, sellers will occasionally be under financial or situational pressure to sell.

Some people did pick up bargains back in 2020 and 2021. They endured a 2-week quarantine in a Bangkok hotel room before flying to Phuket to pick up a steal. Covid made many people realise that life is too short, and if faced with this situation again, they would rather be in paradise than locked down in a cold, dreary city, with no social life and draconian pandemic restrictions. Today, while the bargains may not still be there, the fragility of the global banking sector is motivating some people to turn their cash in the bank into bricks and mortar. The fact that their new home is in paradise is an added bonus.

Let us return to the nature of demand and supply in Phuket. While this may seem like Econ 101 to some readers, it is worth reviewing the basics. If the supply of real estate on the island significantly outstrips the demand, then the market has historically stagnated (not fallen, as in other countries). Inversely, if demand exceeds supply, the prices will continue to rise. Price equilibrium is found when there is an intersection of the demand for Phuket property and the number of properties on the market, whereby there are no excesses on either side of the equation.


In many global markets, and in some periods here in Phuket, we have seen times whereby developers see immense profit potential from higher than normal demand, and ramp up the construction of new villas and condos.


When demand cools, or abruptly halts, we see supply gluts. In some cases the excess inventory forces developers to bring down their prices. In worst case scenarios, developers may be forced to cease trading or even go bankrupt. Bankruptcy is an extreme that generally only happens when a developer can’t sell enough to pay back excessive borrowing, or if they don’t actually own the land in question, but only have the option to buy it once they sell enough off plan units in the early stages of marketing.


One important part of supply and demand theory is that when prices rise, there are fewer buyers willing to pay higher prices. As more developers bring new projects online, and simultaneously increase their prices, this could happen in Phuket.


This is currently not a concern, as there is a noticeable lack of villa inventory, coupled by strong demand from affluent families moving to the island. The number of new international schools being built is a clear indication that demand for family homes continues to grow. Is this trend sustainable indefinitely?


Many developers, and even private owners, are increasing their property’s listed price. In most cases, these perceptions of value may be justified, but in some they are not.

The number of new buyers - put off by higher prices - may eventually lag behind the number of available villas or luxury condos on the market. In such times Phuket has always been more likely to see stagnation or subtle price adjustments, rather than a market rout. This obviously doesn’t apply solely to new projects, but also to existing owners who may want to sell.

Super luxury villas priced in USD will see their THB prices go higher if owners keep insisting on USD valuations, rather than THB. If the USD weakens, then prices will deviate even further from any reflection of local value, instead fluctuating with the exchange rate.

The 1971 decoupling of the US dollar from gold has made many people richer, but this is proving to be a double-edged sword. The monetarist view is that this increase in money supply is the key driver of demand. When more people have more money, this inevitably leads to higher prices. When money creation gets out of hand, so will prices. But when the money printing bubble eventually pops, then we tend to go into reverse as we enter a deflationary spiral.

In the case of the United States (and most western countries) all government bond debt is rolled over on maturity, and will be reissued at now higher rates of interest. This will likely exacerbate the problems we see today in the years (possibly months) ahead.

The US Dollar has always had the luxury of exporting its inflation with new money creation over the last few decades. If the world falls out of love with the dollar, and its reserve currency status is lost, those dollars will find their way home, bringing runaway inflation in their wake.

Anyone who follows global macro economics will know that the money supply in nearly every major economy has increased over the past 50 years – with significant growth in the last 15 years. It is not difficult to see that any demise of the USD will undoubtedly affect the global investment landscape, with a huge impact on demand and supply dynamics across the world.

Similarly, and certainly more imminent, is the US debt ceiling crisis. Currently standing at US$31.4 Trillion (and 100% of US GDP), if the debt ceiling is not raised, the subsequent default would have the same dire, if not catastrophic, repercussions for the global economy.

Throughout history, fiat monetary systems have always had a shelf life. Some may argue that the debasement of gold and silver denarii in Roman times, created a de facto fiat currency, leading to (or at least accelerating) the fall of the Roman Empire. We could very well be nearing the end of this particular fiat monetary system. A new financial system will very likely be along the lines of a digital currency, which most major countries are working on. We have no way of telling what the ramifications of such a system will be for Phuket real estate, but the uncertainty is driving some to the purchase of real estate and other hard assets.

The problem today is that central banks are caught between a rock and a hard place. If they keep raising rates to fight inflation, they could destroy the global economy. If they focus more on the economy and try to spur growth by lowering rates, then we will see inflation spiral out of control. It’s hard to put the genie back in the bottle if things get out of hand.

Buyers seeking a better life on this beautiful tropical island are beginning to notice how high prices have risen. Their preconceived expectations of what they will get for their money certainly seem to be missing the mark.

Lower priced condos are still reasonably accessible, however, those with a $2 million luxury villa budget are shocked to find this is no longer the upper end of the spectrum. Whereas US$2 Million once bought you a spacious new luxury villa with sea views, some of these prime locations are now closer to $10 million. US$2 million still buys an immaculate luxury villa, but it rarely buys you an Andaman Sea sunset view.

In this upward spiral, buyers who sit on the sidelines waiting for a bargain may not find them any time soon.

But developers must also be prudent enough to know that good times don’t last forever and that they should not over borrow. They must also be fully aware of the existence of Black Swans, and accept the fact that trees do not grow to the sky!


by Thai Residential Phuket Property Guide

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