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Phuket Property Guide: Will there really be a ‘COVID crash’ in Phuket property?

Phuket Property Guide: Will there really be a ‘COVID crash’ in Phuket property?

After expressing our initial skepticism that Phuket property prices would collapse under the weight of the COVID-19 pandemic, not everyone was convinced. After all, real estate companies around the world are somewhat notorious for “talking up” the property market regardless of the facts before our eyes.

By Thai Residential

Saturday 18 April 2020, 02:40PM

How much will prices fall before they flatten and recover? Photo: / Pexels

How much will prices fall before they flatten and recover? Photo: / Pexels

Knight Frank is one of the largest real estate consultancies in the world, and renowned for their objective analysis of global property markets. In their latest condo report, Knight Frank’s Phuket Director Nattha Kahapana suggests that once business returns to normal, property prices would not see more than a 5% reduction in price, which obviously supports a more positive outlook.

Some believe this is an overly conservative prediction, and anticipate a greater price drop, so in our next few articles we will objectively assess the future of the market, and try to answer the question:  Will this global economic contraction really have more dire consequences for the Phuket property market than any downturn we’ve experienced in the past?

We agree that no two financial crises are identical, but as the old saying goes: “History doesn’t repeat itself, but it often rhymes.” Faced with nearly a dozen events in 20 years – any one of which had the potential to damage Phuket’s property market – no crash ever came. Instead, each crisis saw the same flattening of prices, with occasional bargains finding their way to the market. John Keats could not have penned a better series of rhymes.

To address this properly, however, we will have to draw more on Keynes than Keats. In other words, more economics and less poetry. The easiest place to start is a discussion of inflation and deflation, and the forces which drive each.

Both inflation and deflation are technically related to the total supply of money in the financial system, with the printing of excess money resulting in inflation, and a precipitous drop in the amount of money in circulation leading to deflation. In everyday consumer terms, however, inflation is thought of as too much money chasing the same number of goods, which results in rising prices. On the opposite side of the coin, deflation occurs during a contraction in the economy, when less money chasing the same volume of goods can lead to falling prices. (These are essentially the principles of supply and demand we learn in Economics 101.)

The global financial crisis in 2008 was expected to cause a contraction in the economy and the worst global deflation since the Great Depression. That deflation never happened for two reasons:  leverage and stimulus.

Many of the financial instruments which imploded in 2008 had their prices inflated through options, meaning the overall economy did not see a massive contraction in money supply because a lot of that money never really existed in the first place. Just as a sports bet only has value if you win, these failed financial instruments were similarly valued at a huge multiple of the amount of money actually committed to the investment.  

This is a very simplified explanation for what was an extremely complex series of financial machinations, but the end result was not deflation. Because 2008 involved a banking and liquidity crisis, property prices did fall in many countries, but stimulus reinflated these markets, some of which rose to stratospheric levels. Those soaring property prices were helped along by record low interest rates to encourage further borrowing.

Excess borrowing and mortgages which could no longer be afforded led to the problems in the real estate industry 12 years ago. People who couldn’t make their payments faced foreclosure, and many with interest only mortgages simply handed back their keys, and walked away from their homes.  Property prices fell because very few people had access to the credit (loans) necessary to buy a house, so houses stood empty until low interest rates and recapitalised banks reinvigorated the housing market.

In response to slowdown in the economy today, stimulus packages on a far larger scale than 2008 are being implemented in countries around the world. With the injection of multiple trillions of dollars into the financial system, there is every likelihood the world will once again stave off deflation. And unlike in 2008, part of these rescue packages around the world involve protecting homeowners from foreclosure. If there is no deflation, and if government programs really do ensure that people do not lose their homes, property prices may not be affected in the same way they were a decade ago.

To bring this all back to Phuket property, the current state of the global financial system does not pose an inherent risk to real estate prices on the island. Furthermore, the aforementioned Knight Frank report observes that 90% of the Phuket condo market is reliant on foreign buyers, who pay cash for their properties.

So, systemically, we do not appear to be in danger of global deflation, and the absence of borrowing on foreign freehold properties in Phuket means that even an owner who becomes unemployed during the COVID-19 crisis will not face mortgage payments which force them to sell their home.

In the next article we will discuss factors which could produce “motivated sellers”.

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 You can also contact Thai Residential directly at Email: or Tel: +66 9484 11918.

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