The last two years have been a difficult period for Thailand, a country that welcomed 39.9 million tourist arrivals in 2019; this figure will likely be depleted to less than one million in 2021. Tourism contributed US$62 billion and nearly 20 percent of the overall Thai economy in 2019. It was a critical sector, and naturally, the economy was stifled when it was shut down. In an effort to kickstart its battered tourism sector and enhance its domestic economy, Thailand is preparing to open its borders and once again welcome foreign visitors from November 2021.
Thailand’s main tourist-dependent resort island of Phuket has been hard hit by the absence of international arrivals, who not only contributed directly to the broader tourism-related sector but made substantial contributions to the economy through property investment. However, in the absence of foreign visitors, the Government of Thailand pivoted and encouraged domestic tourism to fill the void. This shift, somewhat surprisingly, created strong interest from wealthy Thai buyers for high-end villas across the luxury-property segment; Thai investors have viewed the absence of foreign investors as a healthy buying and investment opportunity.
Impeccable, authentic ocean-front and ocean-view villas dotting the “Millionaire’s Mile”, a dramatic stretch along the west coast renowned for premium luxury properties, have been transacting at a fast clip this year. The supply has been largely taken up by high-net-worth domestic investors from Bangkok in what we refer to as the “Hamptons effect”. In much the same way as the Hamptons benefitted from the exodus of New Yorkers from Manhattan during COVID-19, so Phuket has benefitted from those who are financially capable and seeking a less densely populated retreat.
Buyers have generally been looking for “COVID deals”, and while the market has played to lower transactional pricing, there has not been a full pricing retreat to distressed levels. The motivations for owners to part with some of these large luxury villas have been partly driven by their inability to fully utilize their assets or generate incomes from them for nearly two years. Therefore, in some cases, there have been shifts in personal priorities and circumstances versus economic pressures. And uncertainty about when global travel will return to normal and if the pandemic will deal a new set of unforeseen events has also influenced owners.
Foreign ownership of a property requires full and immediate cash settlement upon transfer. Therefore, there is no debt in the market and, unlike the global financial crisis of 2008, little financial stress on capital markets or the banking system and, therefore, no risk of default to drive distressed sales. The owners of such luxury villas could well afford to hold on during the pandemic and beyond.
Thailand’s property laws restrict outright foreign ownership of land, and most landed properties are controlled through local and offshore company structures to comply with the ownership regulations. Land can be legally leased and registered to foreign investors for periods of 30 years, and buildings can be owned outright. Thailand’s condominium laws are robust and allow for foreign freehold ownership in developments of up to 49 percent of the units.
More recently, the Thai government has debated the possibility of relaxing the property-ownership regulations further to attract more foreign investors. Such an initiative would be well received, and the concept could include allowing outright foreign ownership of land for residential use in a limited way, extending the current 30-year registered leasehold to a 50-year lease with renewable rights and increasing the allocation for foreign freehold condominium ownership from the current 49 percent to between 70 and 80 percent of a condominium development. The debate surrounding foreign ownership has always been passionate and somewhat heated, and the government is likely to take some time to mull through the potential implications. Certainly, this would be a welcome step in the right direction and well received by foreign investors.
While the secondary luxury-home market has rebounded strongly, middle markets have remained lackluster, and both the primary and secondary mid-markets present the best opportunities for investors to enter at preferential levels.
Phuket is an island, so, much like Singapore, the supply of land is finite. Over time, based on this finite supply of land, property prices, subject to demand, are likely to continue to appreciate. The island is not going to get any larger; given that many areas are national parkland in addition to the height limitations and restrictions within the current building and development codes, future supply will ultimately be restricted by the land that remains freely available.
Centrally located and with direct access to the growth markets of Southeast Asia, China, Hong Kong and the Middle East, Phuket, with its excellent infrastructure, has been attracting both primary- and secondary-home investors with business interests across the region. Singapore, for example, is just over a one-hour flight from Phuket.
For investors who may wish to stay long term in Thailand, there are multiple choices of visas—from retirement and work-related visas to premium privilege programs, such as the Thailand Elite visa that grants families 10-year visas with numerous perks.
As more nations realize that COVID-19 should be treated as an endemic virus and open up their borders, global travel should start to return; at that point, the property market in Phuket will experience a return to more normal transaction and pricing levels, and the current buying opportunities will disappear.