The Positive Effects of Inflation on Real Estate

Inflation can negatively impact certain sectors of the economy (see “The Negatives” mentioned in the following sections), but generally it is good for house prices.

The global economic phenomenon of money creation we have experienced since the 2008 credit crisis is basically Economics 101, telling us that all the newly created money chasing the same amount of goods is inflationary.

The main driver of this was the post-2008 quantitative easing in the United States, which flooded the global economy with trillions of dollars. Money was created out of thin air, and it had to go somewhere. Much of it went into global stock and property markets.

Thailand was not really party to the creation of this global liquidity, but it was certainly a beneficiary of it.

Investors from around the world came to buy Phuket property, and increased demand (especially recently), coupled with all the additional money sloshing around the system, has driven the price of property higher. It is worth pointing out that these price increases have never been excessive, as other factors have kept Phuket from entering bubble territory.

Higher prices are nevertheless welcome for anyone who has bought during the last few years, as they have very likely seen the value of their property increase significantly.

Demand for Phuket Residential and Investment Properties Remains High

The increase in demand we have seen over the last three years has been fundamental in bolstering the Phuket real estate market. As we near the end of 2024, this demand trend which began after the pandemic, does not appear to be abating. If anything, it seems to have been accelerating, and has led to a faster than normal rise in prices. Over the past 24 months, both villa and condo prices have certainly been on an upward trajectory, at first only in high demand areas, but this now appears to be an island wide phenomenon.

Of course, demand on the west coast of Phuket has always been consistent, and has always seen the most sales activity. There is no reason to think this will change. The lure of the west coast beaches and crystal clear waters in the high season, will always attract more buyers than further inland, or on the east coast.

However, this increase in demand has also led to new villas being built on land that was once viewed as only fit for agricultural purposes. What was once a pineapple field, rubber plantation, or even a buffalo pasture, is now a high end luxury villa estate. These new slightly isolated projects are likley to create new communities and will further lead to improvements in infrastructure and amenities in the area.

The consistent stream of new foreign residents moving to Phuket is unquestionably a major factor in the demand we are currently experiencing. Phuket now has 14 internationals schools, testament to the number of families with children now living on the island.

Retirees will always be a major component of residents on the island, and it is easy to see why foreigners would like to spend their retirement years in Phuket. But over the last few years we are also seeing a rise in “digital nomads”, who are also driving demand. Technology over the last few decades has transformed the world we live in, which has given many people the choice of where to live and work. It makes sense that anyone whose profession allows them this choice would much rather live on a beautiful tropical island than in a cold wet rainy city.

For a small country, Thailand has a remarkable tourism industry, and anyone who has been captivated by Thai culture, Thai food and the friendliness of the people can easily see why. Maybe we are biased, but we believe the official slogan “Amazing Thailand” is well deserved.

Thailand is consistently among the top countries in the world in terms of revenue generated from tourism. In fact, in 2023 it generated US$ 57.5 billion, which the authorities hope to surpass in the not so distant future. The tourism industry has been growing steadily year-on-year, and currently contributes circa 20% to Thailand’s GDP – nearly double the global average.

Clearly this is an extremely important component of Thailand’s economy as well as being a key driver for the Phuket property market.

Number of Arrivals

The high season, which typically begins after the first full moon in November (or coincides with the Loy Kratong holiday) and ends around April/May, is when the tourism sector is in full swing. In 2019, Thailand welcomed around 38 million tourists, and around 28% of them visited Phuket. During December, January and February of that year, nearly 1 million tourists per month arrived on the island. We are not quite back to those numbers yet, but arrivals have been increasing year on year since the island opened up for business again after the pandemic.

The low season (or green season as it is also known) after May always sees the numbers drop off. While the median net worth of each visitor maybe lower than those who visit the island in the high season, the figures still make a solid contribution to the island’s revenue.

The number of tourists visiting Thailand has been climbing steadily over the last 20 years. In fact, the last time we saw fewer than 10 million visitors in a year (excluding Covid) was in 2001 after the 9/11 terrorist attacks. Since then, tourism has grown at a staggering pace, from an average of 10 million per year in the early 2000s to nearly 30 million visitors today.