Resort Investment Property in Phuket
Resort investment properties in Phuket can generate high rental yields for owners, typically ranging from 5% to 9% annually. For investors who are new to the Phuket real estate market, it can be difficult to navigate the various profit-sharing schemes offered by local developers and management companies.
Let’s start by clarifying some key terms. Generally, rental yield refers to the percentage of the property’s value that is returned annually through rental income. In many developed European countries, rental yield is often understood as gross yield, which is calculated as the ratio of rental income to the property’s purchase price, without considering expenses for maintenance, management, or taxes.
In Phuket, rental yield usually refers to the investor's net rental yield before taxes, but after deducting management and maintenance costs. Notably, the net yield in Phuket is significantly higher than in European tourist areas. For example, in a specific case in Athens, net yield from short-term rentals was calculated at just 1.8% annually. This is one of the reasons why Phuket’s resort properties are so popular among investors, including Europeans, as they offer higher returns.
In managed residential complexes in Phuket, rental income for owners can be calculated under different conditions. Let’s explore this using the most common type of investment property in Phuket — condominiums with apartments intended for rental.
Condominiums are multi-unit residential complexes, usually with resort-style infrastructure and services. Their management is organized based on a rental strategy defined by the developer at the project’s design stage.
Some condominiums are more geared toward owner-occupancy. Apartments in these condominiums are typically referred to as residences. Owners can rent out their residences, and there may even be centralized rental management, but the rental yield will generally be lower.
Other condominiums are designed exclusively for renting to tourists. Apartments in these complexes are sold with the intention of being rented out. The owner cannot use their apartment whenever they wish. However, Phuket’s common loyalty systems allow investors to stay in the condominium (not necessarily in their own apartment) for free for several days a year (typically 14 to 30), after pre-arranging the dates with the management company. These apartments offer the highest rental yields for investors.
Guaranteed Rental Yield in Phuket Real Estate Investments
Most resort property developers in Phuket, along with their management companies, offer investors a guaranteed rental yield of 5–7% per year on long-term contracts lasting 2–5 years. In this arrangement, the management company takes on all maintenance and operational costs. This ensures that the investor receives a fixed annual income over the contract period. For example, if an apartment is purchased for $110,000 with a 3-year management contract offering a 5% yield, the investor will receive $5,500 annually, totaling $16,500 over the three years.
Typically, management companies in Phuket make rental income payments to investors once a year, usually at the beginning of the year.
«For convenience, we calculate prices and yields in dollars, but in Thailand, all transactions, including payments to investors, are conducted in Thai baht. The Thai baht has remained stable for decades, fluctuating between 30–35 baht to the US dollar, with only slight variations. This is why we refer to the baht-denominated yield as 'dollarized.'»
After the contract expires, it can either be extended under the same terms or revised.
By choosing a guaranteed yield scheme, the investor is protected from risks such as vacancies or loss of income for any reason—whether it’s due to lockdowns, poor management, or other factors. These risks are absorbed by the management company or developer, depending on the contract. Often, the developer acts as an intermediary (since they remain the landowner) or has their own management company.
Typically, the guaranteed yield is set at a level that allows the company to fulfill its obligations to investors even with low occupancy rates. For example, during the pandemic, when tourism in Phuket was almost nonexistent, resourceful management companies leased properties in condominiums to long-term expats, of whom there are many in Phuket. This allowed them to meet their guaranteed rental yield obligations to investors.
If you are promised a guaranteed yield in Phuket that exceeds 7% per year, it is worth questioning whether this is a marketing tactic used by the developer to compete with other projects on the island. Without solid justification, there are two potential negative scenarios:
- The developer is taking a risk, relying on future windfall profits. If these projections fail to materialize, the project's earnings may not be enough to cover the guaranteed yield, and it will be unsustainable to compensate from other sources for long.
- The cost of the property includes the expenses of paying investors. This is the most unscrupulous option, where overpriced property is sold. Yes, you will receive high returns for the duration of the contract (2–3 years), but in the future, this property will generate lower returns, and you may have to sell it at a discount.
Angelina Belyaeva, Partner Relations Manager at Tranio:
«Sometimes agreeing to a lower guaranteed yield means winning in the long run. You need to look at the guaranteed yield from the developer's perspective. They have no reason to undercut it below market rates, as investors would move to a competitor's project. If the developer sets a modest guaranteed yield (5% is currently typical for Phuket), especially for projects under construction that will only begin renting out in 1–3 years, it reflects the developer’s professionalism and conservative approach to profitability. It means the developer has accounted for potential risks and is prepared to pay this yield under any scenario.»
Once the condominium becomes profitable, gains a reputation among tourists, and shows higher returns, the contract terms can be revised, possibly switching to a rental pool scheme based on actual rental income.