This last High-Season in Thailand proved to be fruitful for property developers, real estate agencies, and landlords alike, thanks to the influx of Russian buyers in the Thai property market. With their depreciating rubles, these buyers sought to invest in dream lifestyle properties and saw the value of their investments rise. Despite the current monsoon season and a drop in tourist occupancy, property prices have remained stable, indicating that the increase in prices may be here to stay. This trend suggests a strong market outlook for investors and emphasizes the resilience of the Phuket property market amidst global economic changes and rising interest rates.
Let’s explore the buying patterns of Russian investors in Phuket, Thailand and the trends they follow. Discover how you can use this knowledge to your advantage. Moreover, we explore the potential impact on the market for resales, presenting you with essential factors to consider. Join us to unravel the secrets of Russian buyers and seize the opportunities that lie ahead.
As we observe the transition from the high season to the low season in Phuket, Thailand, it’s fascinating to examine the evolving profile of Russian tourists and expats who continue to grace us with their presence. Looking back around 12 years ago, we witnessed a surge in Russian visitors to Thailand, but their economic and social backgrounds were noticeably different from today. While there were certainly affluent individuals among them, the majority arrived through budget tour companies, ferried around on buses, akin to those organised travel arrangements of Chinese tourists at the time. Limited communication and limited interaction with local businesses were the norm.
Fast forward to today, Phuket’s last high season has witnessed an extraordinary surge in demand, with restaurants and tourist towns making a full recovery since the pandemic, and long-term rental properties completely booked. The influx of Russian visitors has been so substantial that immigration offices have been bustling with comrades seeking visa extensions, illustrating their strong desire to immerse themselves in the Phuket experience and stay longer in Thailand.
On a personal note, the Russians I’ve encountered during this last high season have been a delightful addition to the Phuket expat ecosystem. With their openness to communication, abundant financial resources, and eagerness to explore, they have brought a refreshing dynamic to the island. While some may attribute the scarcity of long-term rentals or prices rising due to other factors, a closer look at the developments my companies represent, reveals clear trends.
As the conflict in Ukraine persists, it becomes crucial to assess the potential repercussions of a Ruble withdrawal once the war finally reaches a welcome conclusion. The implications for the Phuket property market where I base my findings are significant, and it is essential to understand how Russian buying habits, influenced by similar trends observed in other parts of Asia, such as Dubai, might shape the landscape.
When it comes to buying habits in Asia, both Russians (and Chinese) have exhibited distinct preferences.
In Dubai, the Russian market follows a particular pattern: they are inclined to purchase newly developed properties, favoring off-plan investments or luxury ready-to-move-in condos.
Older properties requiring renovation are generally not favored, as they prefer the end product. However, in Dubai’s current investment property market, opportunities for substantial profits lie in the buy-renovate-sell strategy, given the scarcity of large spaces for development.
The question arises: How do these trends translate to the Phuket property market?
Let’s look at the reasons why so many Russians (and Ukrainians) have been happy to invest in the Phuket property market in particular.
Why Is Phuket The Location Of Choice For Russian Buyers?
There’s no denying that Phuket is probably the most expensive part of Thailand, and for good reason. Superior infrastructure compared to other picturesque beach island destinations, a well connected international airport that’s a 5 hour flight radius from almost half the world’s population in emerging markets and a sought after safe haven for the perfect expat lifestyle, complete with international schools, hospitals and foods, Phuket is the end destination for many people with the funds to support an idyllic lifestyle.
Even though Phuket’s infrastructure is great compared to other beach island destinations, most of the popular tourist destinations on the island were not designed for so many long term residents, that being said, other parts of Phuket are being developed with long term residents in mind, like Chern Talay, Mankik and even further out to Paklok.
For the majority, when foreigners buy in Thailand in general, it’s either a condominium, Freehold or Leasehold, and of course, the popular option of having the controlling majority of shares in a Thai Company, that in turn, owns your villa.
There will always be comments from the keyboard warriors about the definition of property ownership in Thailand. I welcome anyone to reach out to me directly if they genuinely wish to be educated from my decade long experience in Thailand property ownership, (if one just wishes to have a rant, I ask them to simply do so with any lawyer in Thailand who will happily charge by the hour).
For the majority of foreigners, Thailand’s property market is a “Cash-Only Market”. Meaning that if you wish to take part in the easy to understand property ownership laws, it’s entirely reliant on what you can afford today. Meaning that fluctuating interest rates are simply not a factor.
Yes, there are what we call, “Seller Finance or Developer Finance” options available in Thailand, sometimes at the attractive rate of 0% interest and my company deals with them every day, but they tend to only stretch for 1 to 3 years tops, not many foreigners (without a Thai partner) could even imagine qualifying for a 30 year mortgage like they do in their home country.
As a Brit, I look at interest rates being raised to astronomical heights in the UK, rates that we haven’t seen since 2008. When a property market is reliant on mortgages and finance, everything sits on the edge. Something that just doesn’t affect the Thailand property market for foreigners. For the Russians, Phuket displays a solid flow of tourists and multiple up-market expat communities, making Phuket a safe haven for investment.
Russians, looking for ways to protect their wealth and assets. Investing in cash-only markets like Phuket allows them to convert their depreciating rubles into a stable asset, such as real estate, which can potentially appreciate over time.
After the incredible high season we just experienced, the fall out from the pandemic is definitely in the past. Companies in Thailand that are serving foreign markets have for the most part streamlined their business and growth is all we’re seeing. Labour shortage issues are a thing, however money is flowing.
Other things that affect currency stability is of course Thailand’s Political Climate. Now, I don’t pretend to know all the intricacies of the Thai political system however, from a business owners standpoint, these elections have shown a colourful and positive outcome for the future, meaning further stability for the Thai Baht.
4 Strategies Investors Can Use To Navigate These Trends.
In a cash-only market like Phuket, it’s important to consider the potential of properties that offer higher rental income and cater to a more affluent clientele. While cheaper options may seem tempting, the real money lies in properties that are in high demand for rental purposes. Additionally, the resale market plays a crucial role, as the absence of financing options can limit the number of buyers when prices become too high. Although this doesn’t imply a bad market, it’s worth noting that the pace of transactions may be slower without financing options. By recognizing these dynamics, investors can make informed decisions and focus on properties with strong rental potential and resale prospects in the Phuket market.
Small Condo Strategy
Follow the Russian trend of investing in off-plan developments, focusing on mid-priced condos suitable for long-term tenants with ample facilities to appeal to short-term renters during the high season.
Pros: Easy buying, selling, and ownership. Potential for good returns. Cons: Off-plan developments carry risks. Desired units may be more expensive than advertised starting prices. Smaller units can be too small for practical use.
Purchase a New Villa
Invest in visually appealing villas with high Instagram appeal, catering to both short-term and long-term rental demands.
Pros: Wide tenant appeal. Potential for high yield returns. Possibility of you living in the villa occasionally or full time eventually. Cons: Higher initial capital investment. Villa maintenance requires vigilance, especially for larger properties. Ownership requires you to establish a Thai company or alternative ownership structure.
Renovate Older Properties
Buy older properties and renovate them to create desirable options for buyers or tenants looking to purchase or rent in Phuket.
Pros: Abundance of properties to choose from. High return potential. Not much competition. Cons: Communication challenges with contractors. Potential for unforeseen circumstances and hidden problems.
Explore Hotel Business Opportunities
Consider investing in the hotel industry by identifying successful luxury boutique hotels or struggling establishments with potential for improvement. Small, easy to manage luxury hotel / boutique apartments have proven the most resilient as the workforce needed to operate and the cost vs return ratio are favorable, however, in a cash market, you need to have a very healthy budget to buy in.
Pros: Opportunity to walk into a ready-made business. Established client base. Cons: Requires business knowledge; understanding the Thai workforce may be a learning curve.
Each strategy outlined above offers its own set of advantages and considerations. As an investor, it is crucial to thoroughly evaluate your preferences, risk tolerance, and available resources before making a decision. The long-term impact of Russian buyers in the Phuket property market remains uncertain, with the possibility of their continued presence or sudden withdrawal. However, amidst global circumstances, Thailand is demonstrating its appeal as a sought-after lifestyle investment destination.
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