From Boomtown to Backpedal

Beautiful Phuket Island, once hailed as one of Southeast Asia’s post-pandemic success stories, is now facing a reality check in mid-2025. The long-anticipated rebound in international tourism has stalled, leaving the island’s economy, and by extension its real estate sector, on uncertain footing.

Earlier this year, hopes were high. But by May 2025, cracks had begun to show. The Bank of Thailand flagged a contraction in tourism as a key drag on economic growth, despite encouraging signs in exports. The numbers told a sobering tale: by mid-May, foreign arrivals had fallen 1.75 percent year-on-year, totaling around 13.4 million visitors. Just weeks later, the outlook worsened. In June alone, arrivals plummeted 13.9 percent compared to the previous year, down to just 2.27 million for the month. A steep and troubling decline.

The repercussions are being felt far and wide. Once-bustling hotels and restaurants are now noticeably quieter. Tour operators are scaling back, beach vendors are earning less, and the domino effect is hitting everyone from taxi drivers to massage therapists. But the impact isn’t limited to the tourism industry alone. Phuket’s property market, which thrives on both short-term rental income and long-term foreign investment, is also now showing signs of strain.

The unbreakable bond: tourism and real estate
We have talked before about how Phuket tourism and the real estate sector are inextricably linked. The influx of foreign visitors does more than boost hotel bookings and tour sales, it fuels real estate demand. Visitors often fall in love with the island and return to buy second homes, condos or investment villas. Developers, in turn, cater to this demand, launching new off-plan projects and promoting them overseas.

But when tourist numbers drop, the knock-on effect on property is inevitable. Fewer tourists mean fewer prospects entering the top of the property funnel. Lower rental yields make Phuket less attractive for Phuket property investors. And for those who already own property, falling occupancy rates and softening resale demand create mounting financial pressure.

What we’re now witnessing is not just a tourism crisis, but a broader economic shake-up with lasting implications for the real estate market.

What went wrong?
Several factors are behind the tourism downturn, but the biggest shock has come from China, or rather, its absence. Once Phuket’s largest tourist market, Chinese arrivals have collapsed. In some periods, their numbers are down by over 50 percent compared to 2019 levels.

This decline is compounded by safety concerns. A bomb scare near Phuket International Airport earlier this year triggered travel advisories from countries like Australia, creating hesitancy among long-haul travellers. With the Middle East and parts of Europe also underperforming, the island is left relying heavily on regional traffic from India, Russia and Southeast Asia, markets that historically spend less and stay for shorter periods.

Across the island, the atmosphere is subdued. Business owners report steep revenue drops. Hotels are running at partial capacity. And as the tourism numbers fall, so too does consumer confidence. Even property developers, typically the optimists in the room, are beginning to temper their projections.

National figures paint a broader picture
From a broader economic standpoint, the central bank of Thailand has now revised its 2025 GDP growth forecast down to 2.3 percent. Tourism, which contributes roughly 18 percent of GDP directly and indirectly, is at the heart of the problem. The number of anticipated foreign arrivals has been lowered from 38 million to 35 million, a substantial downgrade that casts a shadow over both Phuket and the wider Thai economy. And whether the revised target of 35 million tourists is achievable at this stage, remains to be seen.

To mitigate the slide, the Bank of Thailand has kept its key interest rate at 1.75 percent, which is the lowest level in two years, and has signaled its readiness to ease further should conditions deteriorate. The concern is not only tourism but also high household debt and broader geopolitical instability that continues to affect investor sentiment.

Real estate braces for a recalibration
Phuket’s real estate market, which enjoyed a strong run through 2023 and into early 2024, is now entering a period of reflection. The island had grown accustomed to rapid villa and condo sales, rising prices and high foreign investor interest. But with rental yields falling and the buyer pipeline thinning, the market may be heading toward a cooling phase.

That’s not to say a crash is imminent. High-quality, well priced developments in prime locations continue to attract attention, especially from long-stay expats and digital nomads. But the days of easy sales and instant returns may likely be over, at least for the time being.

Savvy investors are starting to look for discounts, and private owners and developers may be forced to adjust pricing, offer more flexible payment plans, or even slow down new project launches until confidence returns.

A time for rethinking and reinvention
Not all the news is negative. Thailand’s tourism authorities are adapting. Under the banner of the “Amazing Thailand Grand Tourism and Sports Year 2025”, the government is now targeting quality over quantity. The focus is shifting toward higher-value travellers: digital professionals, wellness tourists, retirees and long-stay visitors. These segments tend to be more sustainable, more likely to invest, and more importantly, far more respectful of the local culture and the environment.

Locally, Phuket residents and businesses are stepping up. Environmental campaigns, ranging from waste reduction to reef cleanups, are gaining momentum. These community-led efforts aren’t just for show; they’re part of a broader push to move away from mass tourism and toward a more thoughtful, long-term model.

Real estate developers are also being urged to consider their role. Projects that integrate quality, sustainability, community engagement and realistic pricing will be the ones that stand out in the years to come.

Phuket’s crossroads
As we enter the second half of 2025, Phuket finds itself at a crossroads. It can either cling to the old model, volume-driven tourism and quick-turn property sales, or begin to redefine itself for a more resilient and sustainable future.

This will require alignment between the public and private sectors, as well as a willingness to innovate. Tourism cannot exist in isolation, it underpins the health of the island’s broader economy, including its real estate market. When one falters, the other inevitably follows. 

The choice now is clear: reinvent, or risk a prolonged downturn. With the right strategy and a united vision, Phuket still has time to transform today’s turbulence into tomorrow’s opportunity. 

by Thai Residential Phuket Property Guide

This article is from the Thai Residential Phuket Property Guide. To download the 2025/2026 Guide visit ThaiResidential.com