Increasing demand for luxury villas in Phuket from Russian buyers is driving new supply in the market to reach a record high this year, which could result in a glut.
Vichai Viratkapan, acting director-general of the Real Estate Information Center (REIC), said the luxury villa market in Phuket has been consistently vibrant since the past year, following a sluggish period during the pandemic.
"The surge in demand for luxury villas in the second half of last year has resulted in a substantial increase in new supply launched in the first half of this year," he said.
According to the REIC, the number of luxury villas launched in Phuket during the first six months of 2023 surged 12 times to 541 units worth a total 29.6 billion baht, from 45 units valued at 886 million baht last year.
Prior to the pandemic, the first peak occurred in the first half of 2019, with 194 villas worth 3.68 billion baht newly launched.
The figure dropped to 29 units worth 535 million baht in the second half of 2019, with no new launches until the second half of 2021.
New sales of luxury villas never exceeded 100 units until the second half of 2022 during which 129 units worth 4.16 billion baht were sold.
This trend continued with another 213 units valued at 8.9 billion baht sold in the first half of this year.
The majority of the new villas sold in the first half were single detached houses at 204 units, while the remainder consisted of six duplex houses, two townhouses and one land plot.
In the first half of 2023, there were a total of 979 luxury villas in Phuket, with a combined value of 49 billion baht. These included 907 single detached houses, 29 duplex houses, eight townhouses and 35 land plots.
"The total supply was quite large compared to the number of new sales of 213 units," he said. "There are still 766 units worth 40.3 billion baht remaining unsold. Despite strong sales, the newly launched supply was quite high."
Phattanan Phisutvimol, president of the Phuket Real Estate Association, said the local property market was still primarily driven by international buyers, with a strong preference for pool villas, especially among Russian and Chinese investors.
"Due to the high demand in the villa market, some developers have entered without studying the market, conducting thorough market research, defining their target market or offering unique products," he said.
This resulted in an oversupply in certain areas, including Laguna, Cherng Talay and Bang Tao.
As a result, the opportunity for success has been reliant on agents familiar with international markets. These agents often charge higher commissions, typically from 10% to 15%, leading to increased development costs.
To attract buyers, some developers have resorted to offering guaranteed returns, which require after-sales services and maintenance. This will become a long-term burden.
Mr Phattanan said if developers cannot meet their commitments, it could impact the Phuket market in the long run.
"It is important for developers to provide property management services to look after the assets of foreign customers as those buyers do not reside in Phuket for the whole year," he said.
ROOM TO GROW
Setthaphol Boottho, executive director of MontAzure, a joint venture mixed-use project between Thailand's The Narai Group, Hong Kong's ARCH Capital and Philean Capital from Singapore's Pontiac Land Group, said the luxury home market in Phuket was poised for significant growth.
"Phuket stands out as Thailand's premier tourist hub post-Covid, benefiting from a diverse influx of foreign investment, notably from Russians and Europeans," he said.
Remarkably, Russian arrivals soared tenfold in the first half of 2023, triggering a 338% growth in Phuket's luxury villa sales, with Russians accounting for half.
Chinese tourists were overtaken by Russians at the top rank. The significant investments of Russia's elite in Thailand's property market were evident.
Mr Setthaphol said beachfront land in Phuket was priced at 70 million baht per rai, while other areas ranged from 30-40 million baht.
Prime locations like Patong, Kamala, Kata and Karon beaches were mostly developed, with many hotels and condos.
Attasit Intarachooti, chief executive of Phuket-based developer Botanica Luxury Phuket, said Cherng Talay and Laguna were the most popular areas for luxury villas among foreigners, with 95% of buyers being overseas buyers.
Kamala beach emerged as a sought-after location due to its high-end facilities and amenities including five-star hotels, Michelin-starred restaurants, cafes and bars, with the majority of the luxury residential units situated in proximity to the beach.
"Half of the luxury villa buyers were Russians, especially after the Russia-Ukraine war, as the destination choices for affluent Russians became limited," he said. "The other half were buyers from European countries."
The company plans marketing activities in Dubai due to the growing number of tourists from the Middle East.
Meanwhile, Chinese buyers in the luxury segment remained relatively low in number due to challenges related to outbound travel and transferring money overseas.