South East Asia Property

A lavish Gala Dinner was held at the Royal Orchid Sheraton in Bangkok on Saturday night, to announce the winners of the 2007 Thailand Property Awards. More than 350 of Thailand’s real estate elite were in attendance to celebrate the award.

A three phase process is used to determine the winner in each category:
First, the real estate industry were invited to nominate companies in the 12 categories. Nominees could not nominate themselves, nor nominate in a category where there may be a conflict of interest. This phase closed on 31st August with over 260 nominations received.

Demand for property has increased dramatically in Vietnam since the government issued new laws that allow the lease of land for 70 years and then extensions without any payments. Thai developers are looking to bid for land plots in Vietnam for development. The Hanoi government’s issue of Decree 84 earlier this year brought Vietnam one step closer to opening up its real-estate market to foreign ownership, effectively leveling the playing field for international developers.

The Bank of Thailand admitted it had intervened in the currency market late last week, after a sudden weakening of the Baht, caused by foreign investors shifting their money out of Asia, worried that Citigroup would be downgraded when the full effect of the US sub-prime mortgage crisis took hold.

One potential upside of the situation at the moment is to make Thailand’s property market a far more attractive investment opportunity. The baht reached 34 baht to a US dollar this week. Combined with political uncertainties over the upcoming election causing softening prices the Thai property market seems to be shifting into overdrive.

Clayton Wade, managing director of Premier International, a Thailand-based residential and commercial property consulting group, made some interesting comments in a recent interview with The Bangkok Post. “With the recent downturn in economic indicators and consumer confidence, many local investors have switched money from the stock market to a more secure sector – the Thai property market.”

524px-southeast_asia.jpgSoutheast Asia consists of two geographic regions: the Asian mainland, and island arcs and archipelagoes to the east and southeast. The mainland section consists of Cambodia, Laos, Myanmar, Thailand, and Vietnam; the population of which are primarily Tai and Austroasiatic peoples. The dominant religion is Buddhism, followed by Islam. The maritime section consists of Brunei, East Timor, Indonesia, Malaysia, the Philippines, and Singapore. The dominant religion is Islam followed by Christianity.

South East Asia is making great efforts to bring the region in line with other more well developed property markets, but there are still some anomalies to take into consideration when buying a villa in the area.

Under Indonesian law, only Indonesian private citizens, not companies, are allowed to own the freehold rights to land. Indonesian companies and foreign individuals are entitled to leaseholds, rights of use, rights of exploitation and rights to build.

Although Hong Kong experienced its share of the market turbulence last month with the Hang Seng falling from a high of 22540 on 8th August to 19386 nine days later, it has since reached a new peak of 24089 on the last day of the month. Clearly, Hong Kong stocks are very much part of the ‘˜China story’ and the same has been the case for the territories property market up until now. The Colliers International Hong Kong Property Market Overview published in April 2007 was optimistic and cited the following big picture influences: benign effects of Chinese growth (chiefly the boost to Hong Kong as an entrepot and the numbers of mainland tourists), local stock market growth and the expectation that interest rates would come down in the US.

Hong Kong Harbour
Hong Kong Harbour [photo credits to OZinOH]
The optimism in the Spring centred around the upcoming inauguration of the Western Corridor, providing improved transport between Shenzhen and the northern New Territories, and the very impressive HK$1.8bn paid by Sun Hung Kai for the 12 Mount Kellet Road site on the Peak (which translates into accommodation costing HK$42,196 per square foot).

Kuala Lumpur Skyline
Kuala Lumpur Skyline [photo credits to Christopher Chan on flickr]

The Star (Malaysia) recently published an article titled Kuala Lumpur’s 10 most expensive condos. The article revealed a list of Kuala Lumpur’s 10 most luxurious high end Condos going for a minimum of RM1000 sq/ft (£142 or US$287 sq/ft). The list however excluded the yet-to-be launched Four Seasons and Binjai developments.

We are going to shed more light on each of the 10 most expensive condo developments in Kuala Lumpur.

1. One KL
2. The Troika
3. K Residence
4. The Meritz
5. Marc Residence
6. The Avare
7. Park Seven
8. Pavilion Residence
9. Idaman Residence
10. Ampersand @ Kia Peng

At the end of July we briefly mentioned Vietnam as an example of industrial development as an indicator to spotlight possible real estate opportunities, noting that the government were relaxing the rules on foreign direct investment in property to a limited extent. While there certainly seems to be a lot of opportunities in investing in Vietnho+chiam generally, the picture regarding real estate investment remains relatively obscure.

Vietnam has been liberalising it economic system since the mid 1980s when the government embarked on its programme of ‘renovation’. Growth in recent years has been rapid and compared to India, China or the Philippines there has been greater success in removing extreme poverty measured by the numbers of people living on less a dollar a day. However, investors need to remember that Vietnam is a one-party state and the country’s rulers seem to be taking a cautious attitude to opening property investment to foreigners, in the interests of maintaining their own ability to influence economic development.

Ho Chi Minh landscape
Ho Chi Minh City landscape [photo credits to waa on flickr]

Compete with whom? The current to that question seems to be Hong Kong and, especially, Singapore. However, as Kuala Lumpur (KL) has less clout as centre of international finance than either of these competitors, we need to ask what attractions it has to compensate beyond lower prices. Part of the answer is the accessibility of the rest of Western Malaysia as a hinterland.

Although the west coast had loss favour owing to over-development and pollution, there is now a concerted effort to improve locations such as Port Dickson while the island of Penang has an attractive location and architectural heritage dating from colonial times.

Were the Malaysian economy to recover the dynamism that characterised it in the eighties and nineties, KL’s residential sector would be able to motor on the back of the city’s commercial success. Sharia-compliant real estate investment company, Global Investments, says that Malaysia ‘has to come into line’ with China, Hong Kong, Singapore and India in terms of economic success but this claim begs the question as to whether it will achieve this.

Petronas Twin Towers Kuala Lumpur

Currently, the prime areas for residential development, enjoying the most robust demand are the KL City Centre district and nearby Bukit Bintang, a retail and entertainment magnet. Locating in the city’s centre makes sense because, although KL has a sophisticated metro system (mon-rail, elevated ways and automated trains), the city’s inhabitants tend to favour private cars with the result that rush hour congestion is severe.

This year the state of the residential property market for Malaysia as a whole and KL in particular seems healthy without being overly speculative. Prices have grown steadily in the last couple of years (roughly 7% a year) but rental yields remain attractive also (7 to 9% and higher than in other parts of the country). Furthermore, the government has ended capital gains tax on property (real property gains tax or RPGT).

On the down side, income tax on rents is relatively high (28% but related expenses are deductible) and the legal framework tends to favour tenants strongly. It seems that investors would be well advised to concentrate on the luxury end of the market as the Malaysian has made strenuous efforts to keep standard housing affordable and the proportion of property that is owner occupied is very high.

The big attraction of KL is its affordability with city centre prices at about 11% of those in Singapore. From December last year the regulations on foreign property ownership have been substantially removed for those purchasing properties worth RM 250,000 ($72,000 approx.). Given the price differentials with nearby Singapore, investors based there are bound to be a significant element in the market.

As a an Islamic country, Malaysia is also attractive to investors from the Persian Gulf and Bank Negara, the central bank has provided regulatory underpinning for Sharia compliant investments. A third component of foreign direct investment in real estate is the popularity of the country among UK expatriates with a surprisingly large number of British people having grown up in Malaysia owing to the presence of the armed forces into the 1960s.

Kuala Lumpur at duskKuala Lumpur metro line

One final but vital consideration is the importance of build quality. During the boom years, planning and building standards sometimes left much to be desired. With new condominiums it is probably wise to stick with architects and developers of known good repute, one further reason for staying at the high end of the market .

Redang Island Malaysia
Redang Island, Malaysia [Photo credits to Lukman Kusuma on Flickr]

A recent survey by CB Richard Ellis(pdf) highlights that Thailand has increasing competition on its hands as the pre-eminent retirement and second home (RSH) location in Southeast Asia. The report also finds that retired people relocating abroad is a fast growing trend. Already more than 5% of UK state pensions are remitted outside the country. The picture in terms of the relative attractions of different countries and the pros and cons of each of them is fast changing.

Clearly some of the advantages are good climate, lower living costs and superior lifestyle. New build properties and relatively cheap labour costs will have obvious attractions to retired people. According to the 2006 Mercer cost of living survey, Kuala Lumpur, Bangkok and Manila were respectively 114th, 127th and 141st on the list of world cities ordered by cost of living. What may not be so obvious is that a lower cost of medical treatments may make the move to this part of the world less of a risk than it would seem and give countries such as Thailand and Malaysia an edge over, say, Australia, as retirement relocation destination.

Furthermore, these countries seem to be entering into a Dutch auction in terms of the amount of local bank account balances they require of foreign residents. Gradually, too, the restrictions on foreign ownership of property are beginning to be relaxed. However, in this connection, the ‘Malaysia, My Second Home‘ regime under which foreigners are normally given permission to purchase properties outright is a lot more relaxed than Thailand’s, where 30 year leases for foreign residents are the norm.