Real estate markets in Southeast Asia – including Thailand, Vietnam and Cambodia – have been booming in recent times, and development and investment within the region show no signs of slowing down, he wrote. Alanna Schubach of Mansion Global web portal.
In its latest Emerging Trends in Real Estate report for Asia Pacific, PricewaterhouseCoopers calls the flow of capital into this a part of the world an “embarrassment of riches.” Survey respondents rated Singapore as the very best Asian city to take a position in; sales volume in Singapore increased by 50% last yr.
And now other markets within the region are emerging. Thailand, for instance, has seen a 91% increase in enquiries from Chinese buyers, with cities like Chiang Mai, Bangkok and Phuket seeing particular interest. Chinese buyers are also investing heavily in Southeast Asian coastal cities like Sihanoukville in Cambodia, which experts see as emerging tourist hubs.
In Vietnam, the country’s strong GDP growth and tourism boom are predicting growth in the luxurious property market. A PricewaterhouseCoopers report noted a big increase in rental values in Ho Chi Minh City, with investors expressing confidence that the country’s economic growth will result in a rise in property values.
And while Southeast Asia has been growing for a while, it’s still an excellent time to take a position. The region’s potential for further growth stays high, given the large-scale infrastructure projects underway and a flood of speculation from Chinese and other foreign buyers.
“All of these markets are emerging markets, so they’re likely to be more volatile than the U.S. real estate market,” noted Carrie Law, CEO and director of Juwai.com. “When you’re talking about Thailand, Malaysia, Vietnam, you can’t expect a straight line of growth in real estate over the long term.”
Still, the pace of economic growth in these countries — and the investment their governments are making in infrastructure — means buyers can expect drastic changes in the approaching years, in addition to loads of investment potential.
“Ho Chi Minh City has been called the ‘new Beijing.’ Phnom Penh reminds some people of New York in the 1980s,” Ms. Law said. “We’re talking about a huge, transformational change as these economies shed their old, small skins and become new, bigger, richer selves.”
Continuous Growth Indicators in Southeast Asia
One of the strongest indicators of a recovery in Southeast Asia’s property markets is the growing interest from foreign buyers, the most important group of whom are Chinese.
China’s Belt and Road Initiative, through which the country invests in infrastructure in countries along the traditional Silk Road, has helped spur development in Southeast Asia. And Japan is ahead of China in terms of financing infrastructure projects in countries just like the Philippines and Vietnam, Bloomberg reported.
“You have to look at Southeast Asia in context, given what’s happening geopolitically,” said Janet Minard, president of Jansam Capital, Inc., which is currently developing a housing project in Cambodia. “There’s so much money coming in from China and Japan—it’s like the Chinese are building cities overnight.”
Foreign funds have helped boost the economies of many Southeast Asian countries, with improved transportation systems, higher roads and latest airports attracting tourists and businesses, in addition to real estate investors.
“All the housing markets in Southeast Asia are still hot in general because of the overall economic growth in the region,” said Yasushi Yamada, head of Asia at List Sotheby’s International Realty. He pointed to Thailand, the Philippines and Vietnam as countries showing strong growth.
Chris Liem, director and owner of Engel & Völkers Hong Kong, said that Vietnam is the country with probably the most promising real estate market in Southeast Asia.
“Government policies, an improving economy, high-quality goods and demographics make it a really hot market for investors right now,” Mr Liem said.
He added that he also sees strong economic growth in Thailand, especially in Bangkok.
Chinese buyers are driving much of Bangkok’s boom, investing $10 billion in apartments in the town since 2015. And with public transport construction underway, housing developers are snapping up plots around latest train lines.
In addition to growing demand from foreign investors, there are other signs that promise Southeast Asian markets will remain strong. For example, the region’s demographics suggest that the pace of growth and development will only speed up.
“Demographics show a large youthful population in China, which strongly suggests high potential for future price growth,” Mr Liem said.
Outside of China, the median age of the population across Southeast Asia is comparatively young, which bodes well for the country’s real estate market as young people come of age and start renting and buying properties.
“Most countries in the region have an average age of around 20,” Mr. Yamada noted. “And compared to the urbanization of developed countries, most large cities in the region have a much lower rate,” meaning that even in Southeast Asia’s major urban centers there remains to be loads of room to grow.
Southeast Asia’s Long-Term Potential
The region’s rapid pace of growth could have some would-be investors wondering whether the boom could fizzle out as quickly because it began. But experts on the bottom are predicting continued long-term strength in Southeast Asian markets.
The Southeast Asian region, which has weathered a series of economic crises, including the devaluation of Asian currencies within the late Nineties and a recession in 2008, has taken steps to guard itself from similar challenges, Mr. Yamada said.
“People in Southeast Asia have learned a lot from these challenges, and now the political and economic conditions, as well as the system, rules and regulations, have greatly improved and stabilized in the face of many challenges, which means I think we could naturally expect further and stronger growth in this region,” he said.
Moreover, China’s Belt and Road Initiative is boosting economic growth in Southeast Asia, which experts predict will profit these countries for a few years to come back.
“It works by creating new trade and strengthening economic ties by opening investment channels with Belt and Road countries,” Mr. Liem said. “Since Thailand and Vietnam are on the Belt and Road, we predict that these two countries will remain strong in the long run.”
Cambodia can also be benefiting from its strategic location, with Phnom Penh becoming a hub in Southeast Asia. Chinese investors are actually snapping up skyscrapers and luxury developments within the capital, together with other buyers from East and Southeast Asia.
“Cambodia’s GDP growth rate is 6.9%, which is phenomenal,” said Sam Suzuki, chairman of Jansam Capital. “In the first half of 2018, there was a capital injection of $2.15 billion for construction. Land prices are rising rapidly.”
Even in Singapore, where the federal government has introduced measures to curb the rapid rise in property prices, the city-state stays attractive to residents and foreign investors, with each reporting good returns on property investments in recent times.
While some volatility could also be inevitable for emerging markets like those in Southeast Asia, the region remains to be a “great economic story,” Ms. Law said: “There is significant government investment in infrastructure development, additional investment from the Belt and Road Initiative, and economic growth driven by a growing middle-class population. In addition, Southeast Asian governments are providing predictable leadership on the political and regulatory side.”
Ownership structure varies across Southeast Asia
According to Mr Yamada, investors are drawn to the region not only by potential capital gains and asset diversification, but in addition by lifestyle aspects.
“For some people, the exotic, cultural, heartwarming atmosphere of Southeast Asia is a big draw,” he said. “Plus, the cost of living is still reasonable, except in Singapore, where it’s comparable to world cities.”
And despite the relatively higher cost of living, Singapore offers low taxes, with no inheritance or gift tax or capital gains tax on most assets, Mr Yamada added. After a recent slowdown, the city-state is showing signs of recovery, with house prices rising 5.2 per cent in 2017; the common price per square foot of a house in the town centre is about S$2,119 (US$1,543).
Certain intangible aspects, corresponding to culture and natural beauty, may make Southeast Asian countries attractive to buyers, Ms. Minard agreed.
“I see Cambodia as a precious jewel and the last vestige of Southeast Asian culture,” she said. “When the country opened up to tourism in the 1990s, things stabilized, and then backpackers and first-world tourists started coming. Now the quality of life is changing, with five-star resorts and shopping malls being built.”
Coastal towns corresponding to Cambodia’s Sihanoukville are also attractive to investors searching for a quiet seaside lifestyle, but Property Report evaluation suggests buyers may face risks related to regulation and corruption.
In addition, depending on the country, foreign buyers may encounter some bureaucratic challenges. For example, in Thailand, Cambodia and the Philippines, international investors can own the property but not the land on which it’s built, while in Malaysia there may be a set minimum price for properties purchased by foreigners. In Vietnam, land is collectively owned, but foreign firms can purchase the suitable to make use of the land after which construct on it.
Despite these obstacles, for buyers with a long-term perspective, the investment should repay.
“The ownership structures are a bit unusual for Western investors,” Mr. Liem said. “However, regulations are changing to allow international buyers to own apartments. However, those with a higher risk appetite are usually compensated by higher returns.”
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