Russians flock to Phuket for luxury homes as capital flees sanctions

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2nd March 2024 – (Phuket) Traditionally, Chinese buyers dominated the luxury property market in Thailand’s resort island of Phuket. But as demand rises, real estate agent Vladimir Yeremenko has seen the growth of another group of clients since 2022: wealthy Russians seeking overseas havens for their capital.

“There’s more demand in different segments, with more and more inquiries for luxury properties like beachfront villas or villas with a sea view,” said Yeremenko, originally from Ukraine but now based in Phuket working for property group FazWaz.

Since Russia’s invasion of Ukraine two years ago, the country has seen a massive outflow of capital due to Western sanctions and domestic uncertainty. According to a Moscow think-tank, Russia saw a record $239 billion exit in 2022 alone, four times the outflows in 2021.

With investment channels restricted, Phuket has “emerged as one of the target destinations,” said Phuket Real Estate Association Vice-President Phattanan Phisutvimol. He cited astonishing growth in the luxury sector, with around 4,000 luxury villas under development this year excluding condominiums.

Per association data, the top foreign property investors in Phuket are Chinese, Russians, Americans, Germans and other Europeans. In 2022, Russians were the largest foreign buyers of condominiums by transaction volume.

“For the Russian market, I think this is just the beginning,” said Phattanan.

Some wealthy Russians are also seeking to reside long-term in Phuket, one of Thailand’s biggest tourist draws. Immigration officials estimate over 9,000 Russians have obtained multi-year visas for the island.

“People are starting to look for second homes here,” said Yeremenko. “A lot relocated to Phuket because it was a popular tourist destination for them before.”

Last year, over 1 million Russians visited Phuket, the largest group of foreign arrivals. Russian businesses and property ads targeting Russian buyers have proliferated across the island as their community grows.

However, the buying frenzy has created challenges. Property prices have surged far above pre-pandemic levels as demand outpaces constrained supply. Phattanan cited land prices in top areas soaring from $1 million per rai (1,600 sqm) to up to $4.5 million now.

Some new developments are priced similarly to overseas markets, putting them out of reach for many locals. While foreign buyers target luxury real estate, their purchasing power still bumps up rents and squeezes out local businesses in popular areas.

To curb speculative buying, Thailand restricts foreign freehold ownership of land, although loopholes exist. Still, officials are wary of overly tightening regulations for fear of dampening investment inflows crucial to Phuket’s pandemic recovery.

While friction has emerged regarding competition over jobs, authorities have largely managed to maintain social harmony on the island. With tourism accounting for 20% of Thailand’s economy before COVID-19, most residents accept Russian visitors provide a vital lifeline.

The influx has helped Phuket’s battered tourism industry rebound and buoyed related sectors like language schools catering to Russian students. Despite reports of illegal Russian tour guides and taxi drivers poaching jobs, authorities emphasise that most Russian tourists are valuable, law-abiding visitors.