Taking Off the Rose Coloured Spectacles
How Rising Interest Rates May Be a Negative for the Phuket Real Estate Market in 2024
Interest rates have not, historically, had the same influence on the Phuket property sector as they have in other highly leveraged countries with huge and freely available borrowing. In many western markets, where the increased cost of borrowing could make a mortgage unaffordable, there have often been wild cycles and/or boom-bust scenarios.
However, if global interest rates keep rising they could reach levels that make deposit savings far more attractive than a Phuket property investment.
Until very recently, most global interest rates were held atypically low for nearly 10 years, but when the US raised the Fed Funds rate, the rest of the world followed suit. This caught many financial institutions off guard. Thus, during 2023, some banks fell into bankruptcy.
In addition to further rate hikes causing a future potential banking crisis, rising rates have throughout history been a precursor to stock market crashes, which further stunts global investment.
Higher interest rates are also a remedy to combat higher inflation, and a higher cost of living means spenders have less spare cash, less money for holidays, which is further exacerbated by higher flight and hotel costs the world over.
Can Our Crazy World Affect the Phuket Property Market?
Phuket real estate has always been somewhat isolated from the rest of the world, however, events over the last few years have certainly made us re-examine the potential threats we may face from both looming geopolitical and economic surprises. Here we address what may possibly go wrong for the Phuket real estate sector.
Geopolitical Concerns – How Intergovernmental Policies Affect Phuket Property
There will always be short, medium and long-term risks for the Phuket real estate market. Phuket has historically been relatively detached from the rest of the world, however international geopolitics undoubtedly play a role in global financial stability and instability, even here on a far flung tropical island.
Diplomatic relations are not normally a risk for Thailand, as the Kingdom very rarely falls out with other nations. But other governments economic policies can and do affect Phuket tourism. And it has been shown that the tourism market and the Phuket real estate sector are inextricably linked. For example, foreign governments making it easier or harder for their citizens to travel abroad, such as we have seen in recent years with both China and Russia, did influence tourist numbers over these periods.
Wars also have a noticeable effect on Phuket real estate, but sometimes the results can be positive. We have seen many Russians and Ukrainians, not just visiting Phuket during the current conflict between these two nations, but also deciding to stay and live on the island, subsequently buying real estate.
At the time of writing, we do not yet know the ramifications on how the Israel/Palestine conflict may affect Phuket, or the rest of the world.
Unprecedented Global Debt and the US Dollar and How it May Affect Phuket Real Estate
It is hard to describe the huge levels of debt in the world as anything less than a house of cards. In the IMF’s 2023 Global Debt Monitor the total amount of global debt, which includes public and private debt, sits at US$235 Trillion.
We most certainly have to keep an eye on the seriousness of these unsustainable debt levels and how, at some stage in the future, a debt implosion could wreak havoc, not just on the Phuket real estate sector, but all markets across the globe.
On November 28th 2023, the US National Debt stood at US$33.83 Trillion. This unfathomable figure is still growing and is now sitting at over 122% of US GDP. But it is not just the US that has been borrowing insanely, many countries have taken the same precarious path. Japan, for example, has over 260% of debt as a percentage of GDP. Even Thailand has surpassed the debt levels seen during the Asian crisis, 25 years ago.
When exactly will this global debt bubble burst? Nobody knows, but one thing is for certain: unless governments reign in their spending, there can be no happy ending to this financial drama, not for the world, nor for Phuket property.
The BRICS Nations and How Their Objectives May Change the Phuket Real Estate Sector
It is never easy to predict what disasters may be lurking in the shadows, but a new global financial crisis will undoubtedly have a detrimental effect on Phuket’s real estate market.
The aforementioned global debt problem may be exacerbated by the BRICS nations forming a coalition to challenge USD supremacy. If more countries continue to join BRICS, we may see some of the biggest changes to the global financial landscape for 50, or even 100 years.
Described by some as an economic wrecking ball, if such a new global currency takes off, further weakening the USD, policy makers in the US and other nations will be forced to move interest rates even higher, making the servicing of all existing debt even more difficult to maintain. This will, of course, be further exacerbated by the inevitable demise of the Petro Dollar.
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