By the book: Demand for Phuket rentals outpaces supply

PHUKET: The rental market in Phuket in recent years has been very strong, with rental prices increasing across the island, giving owners very attractive returns on their investment.

This surge in strength in the rental market has coincided with increasing tourist arrivals, which has led to demand for rental properties outpacing supply. Good rental properties have become more scarce as tenants have renewed leases or entered into long-term leases of sometimes as long as three years or more. This has made it much harder to source good rental properties on the island.

In Siam Real Estate’s Residential Market Research Report 2014, we found the average rental
returns for Phuket properties to be 5%, with rental returns ranging from 3% to 9 % in some cases.
Long term rental prices for Phuket ranged from an average of 22,000 baht a month for a two-bedroom condo to more than 200,000 baht per month for a villa property with four or more bedrooms.

Many property developers in Phuket are now offering off-plan buyers guaranteed rental returns. There are a variety of offers ranging from 4% net to 9% gross over periods ranging from two to 15 years.

Buyers would be wise to check the small print when agreeing to rental guarantees as many of those offering very high gross returns actually net down to a much lower figure. This can be checked through your real estate broker, who will be able to provide you with a breakdown of gross returns minus costs.
As highlighted in our recent article on Phuket’s resale market, currently certain owners are in a position where they can offer their properties for sale at a discount to the market value.

With the strong conditions in the rental market in recent years this has enabled buyers to purchase undervalued resale properties and achieve higher than average rental returns on their investment: with some owners able to achieve gross returns of 8% per annum or more. This is in stark contrast to other markets in the region such as Singapore and Hong Kong, where gross rental returns average less than 3% per annum.

DIVERSITY

Phuket’s rental market is very diverse and has experienced changing demographics during the past decade. Many different nationalities come to Phuket looking for holiday and long-term rentals, and therefore the rental market here is affected by changes in the global economy.

The global financial crisis in 2008-9 saw a fall in the number of Europeans and Americans coming to Thailand. These tourists were quickly replaced by a growth in arrivals from Russia, who seemed to have money to burn. However, due to the recent economic situation in Russia, there are definitely fewer Russians taking on long-term rentals of luxury properties compared with previous years.

Looking at the long term, Russians’ love of Phuket is unlikely to abate, and once the economy in Russia recovers this segment of the rental market is expected to recover with it.

There is also a trend of more and more expats in Southeast Asia relocating their families to Phuket due to the improving state of infrastructure, first-class international schooling and high-standard amenities. This segment of the rental market tends to use Phuket as a base and then commutes throughout the region for work, a factor made very convenient by Phuket International Airport.

The growing number of Asian tourist arrivals to Phuket will once again change the landscape of the island’s rental market, as this segment has different wants and needs than other traditional sectors that have been long established here.

Families want to be within easy reach of the island’s international schools and Asian tourists are less inclined to be located close to the west coast beaches. Instead, they prefer to be nearer to the island’s amenities, restaurants, shopping and other leisure activities and are more accustomed to staying inland. This will increase the demand for rental properties inland and push up prices in central, north and east Phuket.

The future of Phuket’s economy is very bright: the growth in airport arrivals has been extremely strong and looks set to continue with the airport expansion well underway.

This clearly shows the resilience of Phuket as a driving tourist destination in Southeast Asia. Phuket is investing heavily in its infrastructure and tourism sector, with investment driven by government and private sector spending, all of which bodes well for the future of the island.

For more information about this article contact Mr Hodges, the North Branch and Investments Manager for Siam Real Estate in Phuket and author of SRE’s Phuket Residential Market Research Report. He has more than six years’ experience in Phuket’s real estate market. Tel: 076-324042 Email: kevin@siamrealestate.com; www.siamrealestate.com.