Both the real estate market and tourism on the island have grown significantly over the years, almost moving forward in unison. But although tourism and real estate seemed to be joined at the hip, tourism has never, and does not today, need the real estate market to survive.
Conversely, the real estate sector would not be the same today without tourism. In this article we delve a little deeper into how the Phuket property market relies heavily on the tourism industry.
Phuket has always been popular with tourists, but was almost unrecognizable in the late 1970’s and early 80’s when the first 5 Star hotels began springing up. Back then, the beaches were nearly empty and the road system was a far cry from what we have today.
Only a tiny percentage of the world’s population had heard of Phuket back in those days, but over these 40 plus years, and especially since the tragic 2004 tsunami, nearly everyone who likes to travel the world and loves vacationing has now heard of this beautiful and idyllic island and everything it has to offer.
After the lull we experienced during the Covid period, it is great to see tourism flourishing again, not just for the local Thai nationals, but also because the more tourists we see arrive on he island, the more potential buyers we have of Phuket property.
As we wrap up 2023 and move into 2024, we are likely to see the beaches return to their pre-Covid glory, with bodies strewn on beaches and restaurants alive and buzzing in the evenings.
How Much Does Phuket and Thailand Rely On Tourism?
The tourism sector is clearly an extremely important constituent of the Thai economy. Thailand has, for a considerable amount of time, been one of the best performing countries in tourism revenue generation.
Most of the revenue is generated during the high season, which typically falls between November and April. The peaks and troughs between high season and low season are easily visible on a chart, and we can all see the huge drop off when the world closed down in 2020.
However, irrespective of the hiccups we have experienced along the journey up until today, one thing is certain: the numbers have increased steadily, and considerably, for over three decades now.
In 2019, Thailand welcomed 38 Million visitors. One third of all tourists to Thailand, prior to Covid, visited Phuket, around 14.5 Million people. It remains unseen as to whether the tourist numbers will meet or even surpass the pre-Covid levels, but nevertheless, the next few months are likely to be very busy for those in the tourist related economy.
When looking at the whole of Thailand over the last few decades, the figures are quite astounding. Thailand has never seen less then 10 million tourists per year (Covid period excluded) since the attacks on the Twin Towers in 9/11. After Covid, as always, Thailand is bouncing back to those same numbers now. Unless we are not hampered by any unforeseen disasters, it is possible we will surpass the 38 Million seen in 2019.
Phuket now generates over 400 Billion THB in revenue from tourists. The only other Thai destination that exceeds this is Bangkok. And according to a recent article in The Nation newspaper, Phuket relies on tourism for 97% of its revenue. Without tourism, Phuket would undoubtedly find itself in dire straits, as confirmed by the period during and after the worldwide lockdowns.
The Nation article above also states that the Thai authorities are quite serious about reducing Phuket’s huge reliability on the tourist industry, with a development plan focusing on diversifying Phuket’s economy. This strategy aims to invest trillions of Thai Baht into the local economy between now and 2027, elevating Phuket into a “global city”.
This shift in the tourism strategy has a number of innovative proposals, such as making Phuket a culinary centre, promoting the health and medical industries, introducing sports tourism, creating an education hub, attracting more boating enthusiasts as well as attracting corporates to hold seminars, conferences and exhibitions on the island.
This will all be welcome news for Phuket’s Thai residents, who have been accustomed interminably to relying mostly on the tourist sector to earn a living. Apart from a handful of small factories and some agriculture (which seems to be diminishing as the island develops), much of the island’s work force has been dependent totally on tourism.
In fact, to put things into perspective, according to the World Travel & Tourism Council, Phuket seems to be more dependent on tourism than in any other place in the world. Their research shows that in the small Caribbean Island of Aruba (also a country but only 69 square miles) tourism makes up 88% of GDP. This is well below Phuket with 97% reliance on tourism. Other island countries mentioned that rely heavily on tourism are the Maldives, Cape Verde, Vanuatu and The Seychelles.
Understanding Real Estate in Tourism Dependent Economies
Many reports have been written about the correlation between tourist numbers and real estate prices. In tourist dependent locations, wherever the economy is dependent on tourism, then this dependency also has a direct bearing on real estate values in those areas.
House prices and tourist activity appear to be inseparable. Indeed, this can be seen clearly by the correlation between the number of visitors here in Phuket and the number of condominiums being sold on the island over those same years.
In tourism dependent locations, the tourist industry and the real estate market are said to be “cointegrated”. The findings of these many reports show us that as tourism increases, so does the value of property. This correlation is consistent over every time frame and can be seen both in the short term and over the long term.
When simply focusing on the generation of wealth and economic output, then tourism most certainly has a positive effect for Phuket. All the tourists who arrive on the island consume goods and services and are therefore great for the island’s economic activity. They buy more “stuff” and they use the services of the local Thai population, such as sightseeing tours or even visa or legal services, if necessary.
More importantly for anyone connected to the real estate sector here, they are all potential buyers of Phuket property.
Hooked on Phuket!
Anybody reading this article will be aware that there is a certain appeal to Phuket, that makes it extremely unique compared to many other vacation destinations around the world.
Just one visit to this enchanted island is enough to hook people for life. The scenery, the food, the people and their culture, as well as the impressive ever-improving tourist attractions.
There is one important thing to note on this subject. Whilst “Experiential Travel”, also known as “Immersion Travel”, has been popular within the global tourist industry since the mid-80’s, first time visitors to Phuket, whether they even know it or not, are encapsulated by this same theme.
For people from Europe, North America or Australasia, or even Africa and some parts of Asia, these first timers (if they have not already visited SE Asia) are literally stunned by Phuket, far beyond just a simple culture shock. Even if tourists stay within a major tourist resort such as Bang Tao, Patong, Kata, Karon or Nai Harn, they are totally immersed into this surreal world. With the culture, food, stunning scenery and the amazing people, their experience is so far from the reality of where they come from, that the experience is out of this world. So much so, that it may as well be a trip to the moon. It is truly transformative.
This instant immersive appeal, which could be described as “love at first sight”, keeps people coming back to Phuket time and time again (we do not have the exact statistics on the number of return visitors to the island, but would guess that it is extremely high compared to other global holiday destinations).
According to Wikipedia, the number of tourists who visit Thailand and then return again at a later date is around 60%. We would suggest that figure may be much higher for Phuket. After all, we all know of foreigners who have holidayed in Phuket and come back year after year, some for 15 or 20 years, or even longer. They become smitten on the first trip and then see no reason to go anywhere else.
Cashing In on Tourism – The Phuket Investment Hub
Although Phuket has always been a place for foreigners to invest, in one form or another, this trend certainly seems to have accelerated over the past few years. The artificially low interest rates we have seen since 2008, spurred investors to look at better income producing assets.
But today that dynamic has changed slightly. Due to this huge amount of money creation, and the large amount of surplus cash sloshing around the system, this has inevitably led to higher prices all around the world, from every day consumer items to real estate. Today, therefore, many real estate investors are viewing bricks and mortar as a perfect inflation hedge too.
In Phuket, not only can investors expect capital appreciation, but also a healthy income from their condo or villa. As such, Phuket has become an epicentre for potential investors looking to invest in Thailand, and thus a thriving investment arena has sprung up.
Phuket continues to be a sought after investment location, with many tourists arriving on the island, doing a little research and seeing it as an ideal location to invest in income producing real estate. This is not just for seasoned property investors scouting for lucrative opportunities, but also for novices looking to get their hard earned cash working harder for them.
Some investors have gone as far as investing in their own projects or finding commercial opportunities such as hotels, guest houses, offices or shophouses.
The old adage about location, location, location will always be king. Making sure that profitability is certain depends on a number of factors, but visitors to Phuket can see for themselves the excellent investment potential. Whether they are seasoned real estate enthusiasts or first time buyers, there are plenty of opportunities to suit all budgets.
Most investors look purely at the income approach, and it is easy to see the attraction. In most cases, the expected cash flows are extremely impressive. This does not apply only to the short-term holiday rental market, but also to long term rentals. Owners are cashing in on the stress-free residential market, as both villa and condo owners are generating impressive returns from long term rentals to foreign residents.
New Home in the Sun – Making a Life Changing Move to Phuket
But foreigners don’t just view Phuket as a cash cow.
Although tourism is once again flourishing, it is also attracting a huge influx of foreigners seeking a new home. After the world experienced the 2020 lockdowns and restricted travel for some time thereafter, a significant number of the millions of people who had visited Phuket in the years prior to the pandemic, saw Phuket as a place they would rather be if the same situation were to ever happen again.
And irrespective of which country tops the list for the largest number of tourists each year, one thing is easily discernable. The foreigners that arrive on the island to relax, soak up the sun and explore this amazing tropical island have fallen so much in love with it, that they have made plans to go home, pack up shop, and make the island their new home.
Phuket has always attracted retirees, and these numbers too have been steadily on the rise. But now the influx of young families is also plain to see with the number of new international schools or campuses opening all over the island. Others see the flourishing tourism economy as an avenue to start a business, or for those who have the luxury of literally working anywhere, the Thai authorities have been extremely accommodating in offering visas to digital nomads who fulfil the criteria.
In addition to the above, there will always be expatriates who work in Singapore, Hong Kong or other Asian cities and commute weekly to work, whilst leaving their families on the island. Many of these families decide to buy a home here, which strengthens the real estate market further.
A Word On Extractive Tourism – The Downsides
Although it would be very selfish to suggest that there are too many tourists and too many people already living on the island, there is, of course, a limit to this growth. At the time of writing in mid-November 2023 things are significantly better than when the island was visited by 14.5 Million tourists in 2019. The burden of such huge numbers had an obvious and detrimental effect on the environment.
The increase in tourist flow caused much pollution and massive congestion on the roads. Of course, the island cannot survive with no tourism, and prospers with more visitors. Employment opportunities for the locals and the lifting of living standards is easy to see. However, when the island becomes too crowded, there is a clear price to pay.
“Extractive Tourism” was coined by the academic, Vijay Kolinjivadi, who believed that the rewards of tourism in some jurisdictions is simply out of sync with, and does not compensate for the destruction it causes. Kolinjivadi suggests that in many cases profit drives tourism, and the well-being of the locals comes a distant second. The best example of this in Phuket is, of course, in the years leading up to 2019. The Covid era was for nature and the environment, a time for Phuket to recuperate and recover, as discussed in this National Geographic article.
But in the aftermath of Covid, and with flight prices rising considerably, the tourists at this point are certainly of a higher quality than the mass tourism Phuket saw in the pre-2019 period. If this dynamic remains the same moving forward, this can only be positive for the Phuket property market.
It is arguable that most people would remain satisfied even if the numbers seen in 2019 are never reached again. But this would only be the case if the quality of the tourists coming to Phuket stays exceptionally high, as they are today. This would also be a boon to the environment as the growth of mass tourism is neither good for the local economy, nor for the nature on the island. Mass tourism in Phuket can certainly be labeled as “extractive tourism”.
Obviously, there lies a happy equilibrium for Phuket. However, the more people staying in 4 & 5 star hotels, eating at restaurants and spending a huge amount of money on tourist attractions, golf courses and the yachting industry, can surely only be a positive for the local economy and the Thai community.
There is undoubtedly an extremely close correlation between arrivals in Phuket and the real estate sales taking place. We can say, with much certainty, that tourism and real estate in Phuket are inextricably linked. The tourism sector here in Phuket is a fundamental driver of the Phuket real estate market.
As well as all the previous visitors, many of whom have already purchased real estate on the island, we look forward to many more arrivals to the island in the coming years. All of them are potential buyers of Phuket real estate. And even if an iota of the number of people arriving as tourists on the island buy real estate here, then this would still be a significant number.
Tourism fuels the real estate market furnace. With no fuel, the fire would almost certainly burn out. As long as the popularity of Phuket keeps increasing, and the ever-rising number of tourists visiting the island continues (preferably quality tourists), we will see the real estate market grow and mature further.
Some people around the world might only now be considering a holiday in Phuket. Some may not even think of it for a year or two, or more. But with the arrival of all these future tourists, the Phuket real estate market will most certainly have an abundance of new potential buyers!