Phuket is experiencing a very positive response to the private home / apartment rental market. This accommodation segment has only really come to the fore since 2000 when a few intrepid developers realised the potential of Phuket in the international housing market. Phuket has long been a popular tourist attraction and with the recent improvements in the islands infrastructure, many regular visitors have decided to purchase homes here.
Similarly, many regular visitors who are familiar with the island find that the facilities offered by the traditional hotels or resorts to be somewhat "cloistered" which can often lead to a feeling that as a visitor, you are not able to experience the local culture to the full. With the current upswing in development in many areas of the island, Phuket is becoming known as a destination where you can take advantage of renting a privately owned home.
There are a number of considerations that need to be taken into account before considering your rental returns.
When considering the options available to you for rental returns, it is most important that you consider what the motivations for your purchase are. If you would like to occupy the home over the Christmas / New Year holiday period, the rental prospects of the home will decrease significantly. This time of year is by far the most lucrative period for holiday rentals, which yield the best returns.
If you are purchasing the home as an investment property with the view to owning the property for a few years whilst trying to minimise the expenses and eventually sell the home for a profit, the returns under these circumstances can be extremely attractive.
Owners who are willing to maintain a level of flexibility in their occupation will do well when trying to minimise the expenses associated with a holiday home. It is important to remember that Phuket Island Property Services do not place any restrictions on the owners of the properties they represent. Should you wish to use your home, you may do so as long as the necessary notice periods are respected. Should the home be available and you would like to visit at short notice, this is possible.
Setting up your home for rentals
There are a number of important considerations when setting up your home for rental purposes. Keep in mind that you will be opening the home to total strangers and careful thought should be given before costly purchases are made. Please refer to the sample inventory and handy "PIPS tips"
Marketing holiday homes in Phuket
Although Phuket is fast becoming recognised as a good place for holiday home rentals, one still has to do a lot of work to attract holidaymakers who would normally seek their vacation home experience in the Mediterranean and Caribbean . PIPS have compiled a review of their current marketing trends, which will give you in depth information on this crucial segment.
Types of tenants
There are two main types of tenants needing accommodation in Phuket. Those on holiday (short term and those that have come to live here for a significantly longer period but do not want to settle here permanently (long tern). By means of definition, a long-term tenant is one who stays for 3 months or longer. There are always occasional exceptions to the rule, but PIPS will only make the long term rental rates to 3 month + tenancies. Owners are always contacted in the case of an exceptional opportunity should it arise.
Owners most serious about generating income from their second home would do well not to exclude this option when it becomes available. We find that long-term tenants currently fall into two distinct categories, young professionals with or without spouses or families.
Most young professionals come to Phuket to either work on a defined contract or plan on settling here and need a place to rent until the home they have purchased is completed. In most cases, the requirements are for an apartment of either one or two bedrooms depending on whether there is a spouse or young children. In most cases, there is a requirement for the apartment to be fully furnished as the time spent here before moving on is finite and the tenant does not want the expense of setting up from scratch.
If the tenant is intending to move into a purchased home the fully furnished option is again attractive as this allows for existing furniture to be shipped direct into the new home from the country of origin. It also allows a suitable time for comparative shopping for the new home without having to make rushed and possibly inappropriate choices.
Long-term rentals of villas would be attractive to families with older children. Once again the motivation for renting the house is the same as for an apartment but it is important to recognise that the number of established families coming to Phuket is not as prolific. Traditionally, it has been our experience that holiday tenancies provide the best returns on villas, which have become very popular as a holiday accommodation alternative.
The high season from November to April prove to be the most popular times for holiday tenancies with the Christmas / New Year times filling up first. The tendency is to then filter bookings either side with an end result of owners receiving good returns for those 5 - 6 weeks. Chinese New Year coincides with this and many Asian based expats use the opportunity to take a Phuket break. The Easter period also proves to be popular around March and April which coincides with the Thai "Songkran" festival. This again attracts many expats from around Thailand as well as those able to take the break.
The rates charged for holiday tenancies are dramatically higher than long-term tenancies as they include a host of added services. Please refer to the PIPS management services document to make the comparisons. The low season is indeed as such and many owners would take this time to make any planned alterations, improvements or renovations. The Island almost reverts to its quite fishing village roots and many owners take advantage of visiting during this time.
There is no fixed distinction as to what rents better over high season, villa or apartment. It all depends on the needs of the tenant. PIPS do not promote any particular home or development. As we list the individual properties individually, the clients are able to choose the home suits their personal requirements.
Average occupancies for holiday tenancies in are on the increase. PIPS have noticed a 5% increase over the past 12 months when compared to records of the past 4 years. For those owners who have made arrangements to maximise their occupancies, average figures of 30% - 35% have been attained when compared to the 25% - 30% in previous years.
There have of course been a number of international factors that have negatively affected the tourism industry in Phuket but the way forward is most encouraging.
Return on Investment (ROI)
This is possibly the most frequently asked question by owners intent on purchasing and renting their property. This is subject to a number of factors, some of which may be beyond control. As mentioned above, global or regional events may adversely affect this as would things like the amount of maintenance required on the home. Limiting the types or frequency of tenancies must also be accounted for.
Currently, the best performing tenancies receive in excess of 12% per year return before expenses. History has shown that 2-3 bedroom apartments or townhouses with either a shared or private pool have provided returns on the upper end. This would be attributed to the preference for these property types for long-term rentals. Along with the maintenance of the property, other influencing factors would be the management fees if the home is on an estate, size of the garden and the maintenance of the pool, pest control, insurance and applicable local and government taxes. It is recommended that owners seek independent taxation advice from a tax attorney to ensure that they fully understand the legal implications of deriving income from their home.
This Review has been prepared by Phuket Island Property Services to assist their clients in making informed decisions regarding the rental of properties in Phuket. Whereas every effort has ben made to ensure the accuracy of the information contained herein, PIPS can not be held liable for any errors and omissions. Facts and figures are based on records derived from PIPS and can not be credited or attributed to any other source.