The cost of living has been continually rising the world over, but especially more so over the last few years. The socioeconomic challenges the world faces have seen the prices of everything skyrocket in many countries. And Phuket, although an island in the Kingdom of Thailand, is not immune from the economic forces at play.   

In this article we discuss how prices have been rising in Phuket across the broad economy, and how the global economic environment also plays a huge part in the island’s rising prices.  

What Exactly is Inflation in Phuket?

Inflation, in and of itself, is not necessarily such a bad thing, if kept in check. However, when prices keep rising faster than wage growth, this obviously erodes the amount of goods and services a person may buy with the wage they are given each month. This affects not just employees, but also retirees living on the island, whose pensions are unlikely to keep up with the cost of living.

Inflation affects all the basic necessities that we have to buy, just to function properly in life. Obviously, the food that we eat, obtained from both restaurants and supermarkets, has been steadily rising in price, as have the cars that we buy and the gasoline we need to fuel them. Utility costs have also been moving higher with the cost of electricity and water increasing. Property prices, too, have been on an upward trajectory, but the most dramatic price increases we have experienced over the last four years, has been seen in the rental market, with some dramatic price increases, mainly for the villa rental market in close proximity to the west coast.

There are many reasons why the cost of living, property, rentals, car prices etc. keep increasing in Phuket, but we can narrow this down to the main factors below.

Global Money Creation Causes Price Rises in Phuket!

Firstly, inflation is usually caused by excess money creation by the Central Bank of a particular nation. When dissecting Phuket’s rising real estate prices, the excess money creation in other nations has a knock on effect on us here, too. This is because as other nations inhabitants become wealthier, due to increased money supply in their home economies (even though prices are rising there too, they buy goods or invest in assets (i.e Phuket property) which tends to create further inflation.

Many investors are also actively looking for alternative investment opportunities, which outperform the current paltry returns offered by the banks. Phuket investment property tends to tick all the boxes as an investment to address this issue.

Phuket’s Rapidly Expanding Population  

Phuket’s population has been steadily rising for the past few hundred years, but nothing compares to the population growth we’ve experienced over the last two decades. It has almost been explosive.

Phuket’s population didn’t start growing, in earnest, until after the year 2000, and then again after the destructive force of the Indian Ocean tsunami hit the island back in 2004. Since then, the island’s population has increased nearly fourfold. The incredible rise in both Thai and foreign residents, and the fact it is a small island, makes this even more visible.

The constant inflow of new foreigners and Thai nationals moving to the island, puts more upward pressure on property prices, as well as the rental market. As long as the supply of newly developed properties doesn’t get too out of whack with the demand at any given time, this is likely to continue.

Phuket’s Limited Land Supply

Phuket, which is a small island, and in extremely high demand, means that land prices will have to rise due to the simple fact that many buyers are all chasing something that is in finite supply.

Phuket only has a limited amount of developable land, especially close to the west coast beaches and, as the island becomes more popular for residents and investors, prices are forced to rise. It is a mathematical impossibility for this not to happen.

The Rise in Labour Costs and Raw Materials

Developers obviously keep a keen eye on their profit margins. When the price of raw materials, such as concrete, steel, lumber and bricks rise (as well as finishings), they need to reflect this in their sales price and will raise the price accordingly.

In addition to the raw materials, the price of transportation, such as lorries, cranes and fuel also add to the construction expenses. This is sometimes known as “cost-push inflation” because these increases in the raw materials necessary to produce the final product are simply passed on to the consumer.

And it is not just raw material costs which are rising. New projects currently in Phuket have also had to incorporate rising labour costs into their pricing. Although the Burmese work force prevalent in Phuket still represents great value, there wages have significantly risen over the past few years of prosperity.

Other Economic Factors Which May Cause Inflation

Although in many ways, Phuket (and Thailand, in general) is extremely self-sufficient, foreigners who purchase foreign goods such as French wine, Australian steaks, Italian cured meats, Spanish olive oil or Scottish whiskey, will be affected by the strengths and weaknesses of the Thai Baht. When a currency loses value, it takes more of that currency to import such goods, pushing local prices higher.

In addition to currency fluctuations, Thailand’s government monetary policy may also create inflation. Lower interest rates are just one example, but tax cuts and excessive government spending may also have the same effect, because this has the same affect as money creation, especially when the money supply increases faster than the country’s ability to grow crops/fruit or produce new manufacturing goods.

How Rising Land Prices in Phuket is Transforming the Wealth of Phuket’s Local Population!!

Economically, Phuket is coming on leaps and bounds.

This is especially apparent when looking at the number of new cars on the road, driven by local Thai’s. However, a great deal of wealth has also been created by the rise in land values.

Families who have lived in Phuket for generations, have seen their land holdings increase significantly in value. Elderly Thai men and their families living in bamboo huts for the last 30 years are now multi-millionaires after selling the land their families have lived on for multiple generations. They now drive around in brand new Ford Raptor trucks and have enough money to pass down to their descendants to keep the family prosperous for the next few generations.

All this becomes very apparent when we look at the amount of arable land, or pastures used for grazing, being developed into new shopping centres, shophouses, hotels, villas, condominiums or even new municipal or government buildings.

Some may argue this is destroying the echo system of the island (and they may be right), but the levels of development are certainly creating new prosperity. Phuket’s Thai nationals, who were once classified as poor have, over the past few decades, become extremely wealthy, even by western standards.

Is Phuket Still Affordable?

There will be some naysayers out there who may complain that prices in Thailand have risen considerably over the last 20 years and is now just “too expensive”. We agree, of course that prices have risen, but inflation is not just a local phenomenon. Prices have risen all over the world too.

Twenty five years ago, it was easy to find a local Thai restaurant where customers could still eat a hearty meal for 40 THB (around US$1.20), but that’s more like 80 THB today (around $2.40). So, of course, although prices have gone up, it is still hard to find many places in the world where you can still sit down at a restaurant and get a great meal for just over two bucks.

Of course, Phuket isn’t anywhere near as cheap as it used to be. In fact, we’ve seen prices rise considerably higher on the island over the past 10 years. But this is also a reflection of the economic progress made within Thailand over this timeframe. Without progress and higher prices today, we would never have seen the dramatic improvements and the huge investment in Phuket’s infrastructure.

Summary

Phuket seems to be markedly different to most other places in the world, and the rise in prices is certainly adding to the prosperity of this small island. Globally, when prices rise and wages stagnate, this inevitably leads to a lower standard of living.

However, on such a small island, with huge demand from both tourists and new incoming residents, the rise in prices has been mostly beneficial. And as long as prices do not get too out of hand, the island should continue to prosper.