Amidst a backdrop of rusting steel, decaying concrete, and empty construction sites lays the dark side of the island’s real estate trade.

Dreams die hard, even in a pandemic, but for thousands of Phuket property buyers who invested in the promise of a tropical dream with endless sunsets, the stone-cold reality of failure is just starting to hit home.

To better understand the sheer size of the market, based on C9 Hotelworks latest research report shows there are currently 22 projects offering hotel-managed properties in Phuket with 6,529 units. As to how significant this is to the larger incoming pipeline of hotels, 55% of all new hotel developments have real estate components.

Digging deeper beyond the hotel-managed or branded condos and villas segment is an equally large number of pure residential developments that promote the promise of guaranteed returns or rental income. Taking these into account the market size swells to over 10,000 units.

Once we started visiting these projects, the fieldwork concluded that over 60% are currently on hold. The state of development includes many empty sites with fallen construction hoarding, blanked-out billboards, and empty skeletons of structures with no activity except stray soi dogs roaming the ruins, looking for their next meal.

Perhaps the most disturbing outcome of the site visits, and follow-up with development sales teams when there was someone who could be contacted, is the lack of certainty going forward. Phuket’s mass-market resort grade real estate sector is somewhat dependent on Chinese and Russian buyers. In 2019, 42% of overseas visitors came from these two source markets. Projects that are highly leveraged in single markets are the most impacted.

Today there are mounting cases of a sudden impact on projects who have defaulted on payments to contractors and there is a domino impact down the economic chain of sub-contractors and suppliers. Legal cases reportedly are rising and in cases of bankruptcy or liens by financial institutions or contractors, those at the end of the food chain are property buyers.

Or in more extreme cases, developers who funding off of purchasers’ payments, in this situation often it’s nobody home time.

Tragically the buck stops with the very single investors who enabled the development in the first place. And the truth is, all that is left are broken promises, empty bank accounts, and often little or no recourse. But, what you have to ask is, how did we get here?

Over the span of more than three decades, starting with the iconic Amanpuri in 1988 and later the flagship Banyan Tree, the concept of holiday home ownership in a five-star resort established Phuket as Southeast Asia’s leading leisure real estate marketplace. But similar to many success stories, once tourism and airlift access exploded, a mass-market boom took hold that created a slipstream for bigger, but not necessarily better investment property developments.

Was this a new concept? Not at all. One only had to look at the towering behemoth skyscrapers along the sunburned palm-fringed beaches and coastlines in Hawaii or Spain that had flourished in the 1970s and 1980s. But in Southeast Asia, with its rocket-propelled economic rise, coupled with a growing number of cashed-up expatriates working in Hong Kong, Singapore, and other Asian gateways, the stage was set for what could best be coined ‘the good, the bad, and the broken-hearted.’

Fast forward to the early 2000s in a landscape where financial markets soared and easy money was on hand, Phuket’s holiday home property market burst wide-open. But, as early buyers mostly ended users or those looking at a later retirement or second home, the millennium brought in the speculators.

Again, nothing new here and you can look at most leisure real estate destinations when they go mainstream and one key learning from watching these markets rise and fall is that once volume-driven supply comes into the market, every manner of investment scheme comes out. And, so it did. While the island paused during the Global Financial Crisis (GFC) of 2008, there were failed projects in Phuket and a marked number of developer defaults that can best be remembered by a few remaining mid-rise vacant structures as you drive around coastal highways and byways.

Memory is a funny thing and people tend to forget quickly. With Asia leading the world in recovery after the GFC, a rising consumer class and developing mass markets in China and Russia drove tourism numbers up, up, and away. Suddenly tourism was the golden goose and everyone wanted in, at any cost. And that cost, become a commodity, going lower and lower as numbers grew.

For developers, the easy sell was small, smaller, and smallest units. With a recipe of low entry pricing points, they often compared their projects to nearby hotels where occupancy soared. Though in reality, despite the facilities, aspect, and quality having little in common, buyers leap headfirst into the dream. What sealed the deal was guaranteed returns of eight, nine, or ten percent. With bank interest rates going down, unrealistic expectations took over as the value proposition was hard to ignore.

With prime land plots in Phuket at a premium, or high barriers to entry, a new breed of condo-hotel developer gravitated to less prime inland areas but all the while touting their products were in line with the best resorts and endless returns. The island’s traditional hotel pipeline also soared as local and foreign investors wanted in on the party that wouldn’t end.

Then came the pandemic. The unthinkable happened. Tourism forgot their bulletproof vest and COVID-19 was a shot to the heart.

Today, the ghosts of the broken dreams of property buyers should haunt Phuket’s real estate industry and usher in a new era of responsibility. I have covered the real estate market for over twenty years and still get the messages from buyers before the GFC who still wonder, have they lost it all, is there any hope? Tragically, in most cases, there is absolutely no hope. The money is lost forever.

The message here is about the need for transparency, responsible brokering, more legislation, and a way forward for property buyers’ rights in cases of default. Much of this is why due diligence is needed and more education for buyers.  A follow-up piece is coming shortly addressing guaranteed return hotel schemes and the basic areas that need to be looked at before buying so stay tuned.

Read the full report here