Step by Step: Phuket’s Property Market – A Looming Correction?

Warnings from Thailand’s Real Estate Information Centre (REIC) – an agency specifically created after the 1997 financial crisis to avert similar economic shocks – suggest that Phuket’s property market may be heading towards a serious downturn. The REIC’s function as a market ‘alert system’ gives significant credibility to its concerns, indicating that current conditions may echo historical precedents of market instability. The present tourism-led "boom" could, therefore, be inflating an unsustainable bubble.

The Numbers Game: Phuket’s 70% Sales Figment and the Oversupply Reality

A common refrain in Phuket’s property circles is the impressive “70% sold” figure for new developments, a statistic seemingly designed to instil confidence and encourage further investment. However, a closer examination of official data paints a starkly different picture, suggesting this figure may be more marketing mirage than market reality.

According to a critical report from the REIC dated May 8, 2025, despite these optimistic sales claims, a staggering 10,159 completed housing and condominium units remain unsold across the island. These empty properties carry a combined market value of approximately B77.078 billion (around £1.7bn), a vast inventory casting a long shadow over the market’s health.

The situation is compounded by an unabated flood of new supply. In the past year alone, developers launched an additional 10,613 new units, marking a dramatic 79.5% year-on-year increase. This aggressive expansion in the face of such a large existing overhang of unsold stock points to a speculative fever among developers, potentially misjudging sustainable demand or rushing to capitalise on inflated prices before an anticipated downturn. Such a disconnect between supply and actual absorption is a classic precursor to an oversupply crisis.

The condominium sector, a favourite among foreign investors due to more permissive ownership laws , is particularly exposed. Condominiums dominate the market, with 15,511 units listed for sale compared to just 2,116 housing units. This concentration means any downturn in the condo segment will disproportionately impact the entire Phuket property landscape.

Even in traditionally prime locations, the REIC data reveals worrying trends. In the popular Bang Thao and Surin Beach areas, for instance, while 3,428 units have been sold, a further 4,466 units remain on the market, unsold. Similar pressures are understood to be building in other key tourist spots like Rawai, Kata, and Karon. The “70% sold” narrative, when set against these figures, appears to be a carefully constructed marketing ploy, potentially masking the true extent of market saturation and luring unwary buyers with a false sense of scarcity.

Source: REIC Data

Leasehold Roulette: The Foreigner’s Precarious Foothold

For many foreigners, the dream of owning a slice of Phuket paradise is built on the foundations of a 30-year leasehold agreement for the land, often marketed with enticing, yet increasingly dubious, promises of two further 30-year extensions (a ‘30+30+30’ structure). However, this perceived security is proving to be a dangerous gamble.

Under Thai law, the maximum permissible lease term is strictly 30 years, as stipulated by Section 540 of the Thai Civil and Commercial Code. Crucially, any clauses promising automatic renewals beyond this initial term are not automatically enforceable. Thai courts interpret such renewal options with severe strictness, requiring a new agreement and re-registration with the Land Department upon expiry of the first term – a process entirely dependent on the lessor’s continued goodwill and willingness to re-negotiate.

The ground shifted even more dramatically with a recent Thai Supreme Court ruling (case 4655/2566, decided in 2023 but published more recently) concerning a Phuket property. The Court declared that automatic renewal clauses in long-term lease contracts that aim to bind parties beyond the statutory 30-year limit are considered void ab initio (from the beginning). This landmark decision effectively invalidates the “guarantees” that many foreign investors relied upon, retrospectively undermining the security of their long-term investments and turning them into assets with a finite, and now far more uncertain, lifespan.

This legal precariousness has profound implications for property values. As a lease term dwindles, particularly when it falls below 15 years, the property becomes increasingly difficult to sell and its value plummets. The uncertainty surrounding renewal makes these properties highly unattractive to prospective buyers. With some of the earliest Phuket leasehold developments now approaching the 20-year mark since their inception , a wave of devaluations and potential panic selling looms as these leases mature and the reality of non-renewal bites. A two-tiered market is likely to emerge, sharply dividing newer leaseholds from older, rapidly depreciating ones, further destabilising the overall market. The ‘30+30+30’ narrative, so effectively used by developers, now borders on misrepresentation in light of these legal clarifications.

Cash is King, Prices are Soaring: The Anatomy of a Phuket Bubble?

Phuket’s property market operates largely on a cash basis, particularly for foreign buyers who are generally unable to secure mortgages from Thai financial institutions. While some proponents argue this cash-driven nature insulates the market from credit-related shocks , it also presents its own set of significant risks.

This influx of cash, often from specific international investor groups such as those from Russia and China , has fuelled rapid and substantial price increases. Residential prices saw jumps of 15-20% in the years leading up to 2024, with further increases of 10-15% projected for 2025. Such escalations, in a market where prices can become detached from local economic fundamentals and affordability, are a hallmark of a developing bubble. The absence of scrutiny from mortgage lenders, who typically act as a brake on overvaluation in credit-based markets, allows prices to be bid up based purely on investor sentiment and global capital flows.

This makes the market highly vulnerable to sudden stops or reversals should foreign sentiment shift – due to geopolitical events, economic downturns in key buyer countries, or changes in capital control regulations. The "stability" afforded by cash transactions is therefore conditional and can mask underlying volatility. Furthermore, these soaring prices are creating significant affordability issues for local Thais, potentially fostering social discontent and increasing pressure for stricter foreign ownership regulations – a risk factor often overlooked by international investors seeking a tropical haven.

The Developer’s Cut: Inflated Service Charges and Opaque Management

Adding to the precariousness for property owners are widespread complaints regarding the management of developments, particularly concerning service and common area charges. In many instances, especially in newer projects, the juristic office – the equivalent of a UK body corporate or homeowners’ association – is initially controlled by the developer or their affiliated companies.

This control can lead to a significant lack of transparency in how common area fees and sinking funds (intended for major repairs and upkeep) are managed and disbursed. Owners frequently report exorbitant fees for basic services, a lack of consultation on annual budgets, sinking funds being mysteriously depleted or used for purposes other than intended, and immense difficulty in holding management accountable. These inflated charges effectively become a hidden, ongoing cost, eroding rental yields and the overall investment value.

While Thailand has consumer protection laws, such as the Consumer Protection Act B.E. 2522, which mandates fairness in contracts and advertising , enforcement can be a protracted and challenging process, particularly for foreign nationals navigating an unfamiliar legal system. The Office of the Consumer Protection Board (OCPB) exists to handle complaints, but the path to resolution is often arduous. The initial focus of many buyers on the purchase price and lease terms often means management agreements, which outline these crucial ongoing costs and governance structures, are overlooked. This oversight can trap owners in poorly managed developments with escalating fees and diminishing property appeal.

Conclusion: The Shaky Foundations of Phuket’s Property Market

The strong appeal of Phuket’s property market is evident, yet a combination of critical factors indicates a troubling outlook. The REIC’s explicit warnings about oversupply , alongside potentially misleading sales statistics, suggest a market burdened by unsold inventory. The legal basis for foreign ownership, the long-term leasehold, faces growing uncertainty due to recent Supreme Court rulings. This is compounded by a cash-driven price surge that seems disconnected from local economic realities and susceptible to abrupt changes in international investor confidence. Furthermore, the persistent issue of opaque and potentially excessive service charges imposed by developer-controlled management adds another layer of risk for owners.

These are not minor issues but interconnected pressures creating systemic vulnerability. An oversupply situation will likely depress prices and rental returns, making it more challenging for owners of increasingly insecure leaseholds to divest. A shift in sentiment within the cash-dominated market could lead to rapid value depreciation, while high ongoing service fees become an increasingly significant financial drain. The available evidence suggests that for many, the investment in Phuket property could become a considerable financial burden. Thorough due diligence and extreme caution are essential for anyone considering entering this attractive but increasingly precarious market.

Simon Causton is a long-time Phuket resident, founder of Citadel Phuket and author of ‘The Phuket Periodical’ newsletter. X (Twitter): @SimonCauston