South East Asia Property

Ho Chi Minh City Vietnam

Vietnam’s property market was once one of Asia’s hottest.  But in recent years it has cooled and officials blame both speculation and banking practices for the constriction of the sector’s financial arteries.

Vietnam’s property market is the country’s most popular sector for foreign investment, according to online newspaper VietnemNet.  Data released by the National Finance Supervision Council showed $9bn of foreign money invested in Vietnam in 2011, and 52% of this found its way into the property sector.

However, Vietnam’s economy has not remained immune from the events of the outside world.  Low demand has resulted in weak liquidity, and high inventories continue to restrict economic activity by holding investors back from paying their debts.  Many businesses faced bankruptcy or closedown due to issues concerning high inventory and debt, and the industrial index declined markedly in 2011-12, falling 21% between January 2012 and January 2013.  Although Vietnam’s long-term outlook remains bright, with the country tipped by HSBC to become the world’s 41st largest economy by 2050, the immediate future is problematic.

As far back as August of 2012, Vietnam’s property sector experienced a crash one official compared to the 2007 crash in Thailand.  Hua Ngoc Thuan, chairman of the People’s Committee of Ho Chi Minh City, layed the blame at the feet of property speculators who he said had ‘pushed the prices so high.’

The bad debt issue is also a major worry for the Vietnamese economy as a whole.  Jonathan Pincus, an economist in Ho Chi Minh City, warned the Economist that the banking crisis ‘is going to constrain growth for a serious amount of time unless it’s dealt with.’

The seriousness of the bad debt problem in Vietnam is underlined by the State Bank of Vietnam’s upwardly-revised estimate of the bad debt in the country’s banking system, at 8.8%; that’s already the highest in South-East Asia, but the bank Standard Charter puts the figure at between 15% and 20%, perilously close to the 20% national credit cap and consequently posing the danger of paralysing the banking system.  After Dr Tran Du Lich of the National Financial and Monetary Policy Advisory Council used the phrase in 2012, the combination of bad debts, poor liquidity, inappropriate regulations and long-lasting large inventories is now commonly called Vietnam’s ‘blood clot.’

For foreign buyers Vietnam presents several unusual obstacles.  It’s impossible to own land there, it must be leased from the state, and the mortgage rate is 13%, set deliberately high to cool a roaring market and combat Asia’s steepest inflation rate.  Additionally, property purchases will usually be conducted not in dollars or in the Vietnamese Dong, but in gold.

With the difficulties mounted against them it might seem no wonder that foreign investors are less involved in the Vietnam property market than they were recently, but it’s unlikely to be the peculiar regulatory environment that has deterred them.  More probably it’s a property bubble that has just burst, with such overinventory that Nguyen Duy Lam, director of construction and real estate company Pacific Real, told the New York Times that ‘everyone wants to sell, but they can’t even if they lower the price.’

The State Bank of Vietnam (SBV) is trying to use injections of foreign capital to rescue banks it thinks worth saving while urging others to merge.  Some Japanese banks have taken an interest and the SBV has submitted a draft decree to allow foreign investors to take up to 30% interest in Vietnamese banks, up from the 20% limit at present.  Following a European lead, the Vietnamese government has also announced plans to set up a ‘bad bank’ to handle all the sector’s bad debts.

However it comes about the property market in Vietnam is not expected to recover without reform of the Vietnamese banking sector, and this will take time.

Photo credits: Marcel via Flickr

Bangkok City Skyline

Thailand has been a popular destination for tourists and expatriates for over three decades.  Over this period  it has experienced an extended property boom, which has been particularly concentrated in the Bangkok Metropolitan Region (BMR).  The BMR contains 17% of Thailand’s population and accounts for 44% of its GDP.  Household incomes there average 42, 000 baht, nearly double the Thai national average, and demand has grown along with supply as Thailand urbanized.

The recent trend has been for developers to look further out from the centre of Thailand’s economy, finding provincial sites.  One reason for this could be a slowdown in the BMR property market as it reaches saturation.  Typically 80-100, 000 new units are sold each year, but the absorption of new housing units has flattened off at 35-40% and inventory levels are struggling.

As in many Asian markets prices are rising faster than income growth.  Although Bangkok is no Hong Kong in this regard, it is experiencing an affordability problem.  As in Hong Kong the response from developers has been to downsize already small living space, but many Bangkok apartments are already 20-30m2.  Additionally, a smaller number of condominiums than expected were built in 2012 and the numbers are expected to fall further this year.  Of those built, 54% were in suburban areas of Bangkok and the trend for decentralisation is expected to continue both locally and nationally.

While the mass market may be saturated there is still strong demand for highly desirable locations along the proposed skytrain route, and competition in this market is intensifying.  As it does so, developers are climbing aboard the bandwagon and presenting their products as tailored to a luxury-oriented foreign market, in line with the conclusions on the importance of branding drawn by Rinchumphu et al in the International Real Estate Review.  Other developers devote themselves to the foreign market which they claim is booming.

Another reason for the withdrawal of developers from the BMR could be the blows to consumer confidence caused by the 2011 monsoon floods and the recent political unrest in Thailand.  The floods in particular pointed up a key concern for the BMR area: it’s located around the mouth of the Chao Praya River and is very vulnerable to flooding.  It’s also built on an alluvial flood plain.  As a result of aggressive groundwater extraction, Bangkok was sinking at a rate of 10cm yearly in the 1970s, and even now is sliding into the Gulf of Thailand at about 1-3cm yearly.

Additionally the sea level in the Gulf is expected to rise between 19 and 29cm by 2050 as a result of global warming, leaving BMR residents with the unwelcome prospect of a 4m descent by 2050.  The World Bank expects Bangkok’s flooding risk to increase fourfold by mid-century, and experts agree.  ‘In 50 years,’ according to Mr. Anond Snidvongs, a climate change expert at Chulalonkorn University, ‘most of Bangkok will be underwater.’

There are further troubles ahead for the Thai contruction industry, too.  The Thai government is currently drafting the third round of the country’s zoning laws.  Based on information collected in 2004, these reallocate much suburban land to agricultural purposes, and have been attacked for being out of date and restrictive to development.  The Thai Industry Minister Prasert Boonchaisuk said at the start of the month that he had asked the Interior Ministry to reconsider its plans.  In an especially harsh blow for urban Bangkok the new plans will include restrictions on the height of new buildings, slowing condominium production further.

The Stock Exchange of Thailand (SET) has risen recently and there are other promising signs including the Thai government’s commitment to a gigantic, nationwide infrastructure project that will see $77m spent in the next decade and will include several new mass transit systems, opening suburbs to development.  However, the old model of strongly centralized urbanization in the BMR is probably gone permanently, despite sales talk to the contrary.  David McCauley, the ADB’s chief climatologist, puts it more bluntly: ‘There is no going back.  The city is not going to rise again.’

Photo credits: Mike via Flickr

 

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Opus Hong Kong – home of the most expensive apartment in Asia

The world’s second most expensive apartment isn’t in New York or Paris or Berlin, or even Tokyo.  It’s in Hong Kong, where Asia’s priciest living space and the second most costly in the world, after One Hyde Park, in London has gone on sale.  The apartment, a 6,755 square foot unit at the 12-unit Opus building in downtown Hong Kong, has sold for HK$430m – US$55m.  That’s a price of US$8, 130 per square foot.

Obviously, that’s a huge price per square foot and a huge apartment too.  But Hong Kong is an expensive place to live even if you’re not shopping for an Opus-style apartment.  The average Hong Kong apartment is 600 square feet, a much more modest proposal.  But buyers can still expect to pay HK$4.5 million for such a place – US$580, 135.  Compare that with Brooklyn heights, now one of the world’s stiffer-priced neighbourhoods, where New York centred blog Curbed.com found one couple paying US$1500 a month for a 240 square foot apartment, and it doesn’t seem so bad.  But Hong Kong’s prices are for family homes and the figure is an average across the city: New Yorkers willing to live in Ridgewood, or East Williamsburg, can hope for significantly lower rents.

But both major cities face similar pressures.  As a result of being key areas in their countries’ economies, there’s a premium on living in them.  The average Honk Kong income is HK$20, 200 pcm.  For two working Hong Kong residents to buy an apartment, then, they’d have to spend 18.6 years’ worth of salary, without spending a penny on anything else.  That’s in clear contrast to the rest of Asia, where prices are typically much lower.  Singapore households are typically looking at between three and seven years to pay off their property purchases , less than half Hong Kong levels.  Yet in the US, both would be considered out of reach: affordable’ there means three years or less.

As the housing market across Europe and American crashed hard after 2008, Hong Kong experienced the opposite.  Prices began climbing in the first quarter of 2009, quickly passed the levels of 1997, the previous market peak, and have risen quarter on quarter since then; a record every three months.  But incomes have not kept pace.  Average pay has risen by 15% in the same period as property prices have shot up 85%.  The result has been a ‘sandwich class,’ earning between HK$20, 000 and HK$30, 000; for these people to enter the property market, prices would have to fall by between 19% and 30%, according to Li Xueying Asia News Network (MCT).

Hong Kong faces a housing crisis in the making.  But it’s less like the US of 2008, where prices fell vertiginously, and more like the US now, where prices are rising but wages aren’t.  Some attribute this to mainland Chinese buying Hong Kong property: Mainlanders account for 40% of luxury home sales but only 10% of total home sales, and Hong Kong’s Chief Executive Leung Chun Ying has announced a law to bar foreigners from buying private housing, with the Hong Kong government in the process of figuring out the details.

Mr. Leung is thought to have made the move partly to deflect criticism from his rivals for having failed to combat the housing shortage since his election two months ago: however, the first result of his action has been a tumble in the Hong Kong stock market.  Meanwhile, academics have criticised the vagueness of the measure, which Mr. Leung is keeping sufficiently nebulous as to discuss neither the law itself, saying only that the government was drafting the legal framework, or its date of enactment, which he said would be ‘when necessary.’

In fact one major driving force of Hong Kong’s housing shortage is the lack of housing: 5, 000 too few homes a year for the last six years and a projected shortfall of 185, 000 homes by 2017, according to Eva Lee of investment bank UBS.  The other is the Hong Kong government’s lack of control over its own interest rates.  The Hong Kong currency is pegged to the US dollar, forcing officials to follow a monetary policy tailored to a totally different situation.  The Federal Reserve’s attempts to rekindle the US economy are seriously inappropriate to a market that’s  more in danger of overheating than going out.

If home prices continue to be the political flashpoint they are already developing into, the question is whether Hong Kongers will vent their unhappiness – supposedly on the increase on mainlanders, or whether they’ll rally behind the cry -˜the rent is too damn high!’

At first glance Malaysia looks like it should be the natural investment choice in South-East Asia.  The archipelago nation is one of the richest countries in Asia the result is a burgeoning middle class combined with a tourist trade that brought in over 22m tourists in 2009.

kuala lumpur city skyline

But Malaysia offers more to its potential investors.  For one thing, Malaysia is a prime target for investors from China, Singapore, Japan and South Korea, according to South-East Asian property website property-report.com.  That’s partially explained by cultural similarities and physical proximity: it’s always going to be tempting to invest in a place that’s easier to reach.

But there are other reasons too, especially for Singaporeans.  Eric Chan, who’s Deputy Manager of property developer Eastern & Oriental Berhad, explains that the MM2H’ ‘ Malaysia My Second Home ‘ program offers foreign visitors a 10-year multiple entry visa referred to as a Social Visit Pass, and this has made Malaysia particularly attractive to investors who can now be physically present at their property far more easily.  Of course, for Singaporeans this holds true doubly: Singapore City is only 196 miles from Kuala Lumpur, but the biggest buyers are from the state of Nusajaya, Johor, just across the border.

Added to this mix,’ Mr Chan continued to explain, ‘is Malaysia’s friendly lending terms’ ‘ these are extended to foreigners to and can offer finance of up to 90% ‘if certain conditions are met.’

The Singaporean Dollar has been rising consistently against the Malaysian Ringgit ‘ 3% since January alone – and now exchanges for about 2.5 Ringgit, leaving Singaporeans in an advantageous position when it comes to buying their neighbours’ houses.  Add to this the price of Malaysian property, which is about a sixth the price of equivalent Singaporean properties, and there is a significant inducement to Singaporeans to chance their arm over the border.

The mixture of generous lending terms, government incentives and physical proximity may have made some Singaporean investors overconfident, however.  The Malaysian real estate market also comes with a lack of transparency that surprises foreigners, including those from neighbouring countries.  According to the Global Transparency Index, a proprietary index compiled by Jones Lang LaSalle, Malaysia ranks 23rd ‘ ten spots below Singapore.

This can mean that developers who default on payments can be difficult to track down, and more than one investor has been left with a second Malaysian home that they can’t pay for or sell.

Additionally, the Malaysian government is considering altering the minimum price of foreign investors’ properties.  It currently stands at RM500, 000, but is set to double to RM1m.  The move will be a bid for popularity by the Malaysian government which will receive approval from young middle-class couples currently fighting richer Singaporeans for a place on the property ladder.  However it may take less wary investors by surprise.

In fact, the same rules apply as anywhere else.  ‘Most of us fail to do any sort of research prior to investing into the properties,’ points out Michael Tan, an investment coach.  Eric Chan agrees: ‘Research is essential in buying a property,’ he says.  ‘A reputable developer and good location is the mantra in property investment and it is no different in Malaysia.’

Mr Chan explains that location with Malaysia is a major factor, with investors in the Kuala Lumpur area expecting to make up to a 30% capital appreciation on completion of their investment projects.

But in other areas of Malaysia the maths works out differently and investors who fail to consider location.  Big towns on the island of Johor, like Penang and Iskandar as well as, of course, Kuala Lumpur, offer great possibilities for investment.  Unfortunately, the very market dynamics that make it relatively easy for Singaporeans to invest in Malaysian property can also make it impossible to get a return on their investment.

David Neubronner, Head of Residential Project Sales, of Jones Lang LaSalle, explains that Malacca, for instance, is a more historic town appealing more to locals ‘ who frequently can’t afford to give a Singaporean investor a good return on his investment.

Like may other analysts, Neubronner goes on to remark that a key feature of unwise investments in Malaysia is a false sense of security and buying interest ‘based on sentiment than investment.’

PetroVietnam-Hanoi-Tower-2nd-Tallest-building-Asia

Hanoi, the Vietnamese capital is to become home to the second largest tower in Asia, material proof of the growing economic prowess of Asia’s brightest emerging markets.

The design of Nikkei Sekkei, a Japanese architectural firm was chosen for the 102 storey, 528 meter tower to be built in the Me Tri commune in Hanoi’s outlying district of Tu Liem. The est. 1.2 billion dollar tower, financed by the Petro Vietnam Construction Joint Stock Corporation (PVC), the Vietnam National Oil and Gas Group, the Ocean Group and the real estate developer SSG Group, will comprise trade centres, offices for lease and apartments.

The tower is phase 2 of a massive complex being built by the corporation, with phase 1 comprising 3 150m hotel and apartment towers. Construction of phase 2 is due to start in 2011 and take 30 to 36 months to complete. When complete, the tower will be second only to the Burj Dubai Tower in the United Arab Emirates.

This is a big deal for Vietnam. As China and India become global economic superpowers, one would expect them to be coming out with towers like this, for Vietnam the structure will be a symbol of how far the nation has come, and something that all Vietnamese citizens can be proud of.

During the recent global construction and property market boom, Vietnam became known as one of the hottest emerging markets in the world. As the recession crossed from America to the UK and rumours of a global crisis began to emerged, Vietnam was talked about as one of the few markets with a chance of escaping recession.

Unfortunately it suffered a recession, but is thought to be rebounding strongly. The International Monetary Fund is forecasting growth of 6% this year, and 6.5% next year.

There is also undeniably a great deal of wealth in Vietnamese corporations like PVC, and developments like this will not only bolster economic growth, by providing jobs from the lowest level to the highest, but also by growing merchant companies who supply materials for its construction. We will be watching this development very closely and keeping our readers apprised of its progress.

Vietnam’s luxury property sector has been surprised by a rise in local Vietnamese buyers, filling the void left by the exodus of foreigners at the tail end of 2008.

Last year saw locals buy into the Hyatt Regency Residence and Ocean Villas in Danang or Sanctuary Ho Tram Resort in Ba Ria Vung Tau province where an apartment is priced at at least $180,000 and a villa up to $1.7 million.

Hong Kong Skyline from Victoria Peak

The Hong Kong Monetary Authority, the city’s central bank, last month imposed tighter mortgage restrictions, which Hong Kong Chief Executive Donald Tsang said were to stave off a big property bubble following soaring prices this last year. He told attendees at a business lunch: “We do not want to see a huge property bubble developing in Hong Kong,” having earlier said that he wasn’t sure whether a bubble was forming or not.

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Most-Expensive-Apartment-Hong-Kong-Conduit-Road-39

When I was a kid, if you saw “Made in Hong Kong” stamped on the underside of anything, that pretty much assured it was cheap and badly made. You certainly could not apply that to the Conduit Road 39 building in Hong Kong, where a 6,158 square foot duplex apartment has just sold for US$56.5 million. That’s a lot of square feet, but that’s also a lot of money – and the developer Henderson Land thinks it’s a record not just for the city but for anywhere in the world.

The apartment was bought by a company whose money comes from mainland China, according to the developer, but more than that they either don’t know or won’t say.