But will the likely economic slowdown we face really lead to lower prices across the board? Well, this remains to be seen. While there may be bargains to be found on global stock markets, the multitude of discounted properties which many are expecting (and hoping) to find in Phuket may never materialise. We did hint at this in our last article, and promised to expand upon it.
Everyone loves a good deal, and finding a property bargain is especially gratifying. Properties regularly hit the market at ridiculously attractive prices, and these get snapped up almost as soon as they are listed. While we have seen such bargains already this year, their sale price had nothing to do with coronavirus or its aftermath.
A highly motivated seller – someone who must liquidate a property quickly – may list a truly cut-price villa or condo, but such owners in Phuket are very rarely that desperate to sell. This owes much to Phuket’s foreign real estate sector being a cash market with almost no borrowing. We estimate that only 1% of properties sold to foreigners here have any bank lending, so neither unemployment nor a credit crunch is going to affect mortgage payments.
The peaks and troughs found in other property markets around the world are generally caused by credit drying up and the subsequent risk of foreclosure. Because this is a systemic problem across the broader economy, some people are forced to “fire sale” their home, either to avoid losing it completely or to plug holes elsewhere in their finances. Phuket does not experience the same volatility because there is virtually no borrowing/leverage in the market.
In the last 20 years, Phuket has faced bird flu, SARS, the tsunami, military coups and red-shirt, yellow-shirt political disruptions. Globally we have seen 9-11, the dot-com bubble popping and the 2008 global financial crisis with its destructive credit crunch. Each of these events resulted in a contraction in tourism, but not once in the last two decades did we see property prices fall significantly. Instead, prices stagnated for a period of time – a sideways movement rather than a collapse.
Sellers of real estate in Phuket are very rarely desperate for money because, unlike sellers in most other countries, they did not borrow beyond their means to finance the property in the first place. Saying that, we may yet see “motivated sellers” begin to reduce prices to make their properties more attractive. People sometimes “buy the dream” and their irrational or emotional purchase may have cost them significantly more than their property was worth. After a period of denial, and if money becomes tight, they may need to raise cash quickly, finally cutting their losses and offloading the property at a lower price.
But this is highly unlikely to occur on a scale that would precipitate the same widespread drop in property prices seen in other countries. For every bargain that comes on the market in Phuket there are 25 people who have been hunting that bargain – sometimes for months. Such a deeply discounted property is sold before most people ever saw it listed.
Most of the “bargains” found today are properties bought 10 years ago (or more) by people from countries such as Sweden, Russia or Australia. Their currencies have depreciated against the baht, so even by selling at a supposedly low price, the stronger baht means they are still making a tidy profit in their home currency.
There has also been a change in rental focus by property owners, but this actually started a year ago or so in the wake of the government enforcing short-term rental regulations. Owners began to shift their attention from the holiday market to longer-term residential rentals, and this trend has intensified due to the recent drop off in tourism. Because the foreign residential population today is significantly higher than it was during previous crises, it has been no real struggle to find tenants. Owners must accept slightly lower annualised returns than they would have received with holiday rentals, but they are not panicking and they are certainly not selling.
Finally, we must mention the tourists who are not traveling to Phuket at this time – whether by personal choice or due to national travel bans. Nearly EVERY airline is offering some form of credit for travel to be completed either by the end of 2020 or within 12 months. We have spoken with hundreds of people who have postponed their trips, but they are all planning to be in Phuket by the end of the year.
We don’t know when travel bans will be lifted. We don’t know when tourism will return to normal. But we do know that every significant hit to Phuket tourism in history has been temporary, and Phuket always bounces back. We can expect nothing less this time.
This article was provided by Thai Residential, creators of the 2018/2019 Phuket Property Guide. To view the 2019/2020 Thai Residential Phuket Property Guide online, visit thairesidential.com/phuket-property-guide. You can also contact Thai Residential directly at Email: phuket@thairesidential.com or Tel: +66 9484 11918.