South East Asia Property

Agence France Presse reports that Singapore’s residential property prices rose by 10% in 2006 and that rents have risen by a truly extraordinary 100% in 2007 so far. That rentals are increasing steeply is confirmed by other sources (http://lushhome.wordpress.com/2007/04/) and there is evidence to suggest that the government is just as surprised at the change as everyone else appears to be. However, we’ve found no confirmation of AFP’s 100% increase statistic, yet. Data to hand suggests that rental yields have normally been in the region of 3.5% maximum for a number of years.

Given that interest rates on savings in Singapore are less than 1% pa (www.singstat.gov.sg/Keystats/mqstats/ess/essa51.pdf ), property would still seem to be an attractive investment but, as borrowing rates are considerably higher (prime lending rate is 5.33%), any kind of gearing for property investments would be heavily dependent upon prices of assets rising to be economic.

Mortgage rates are lower with fixed rate mortgages available at 3.75% and floating rate ones available at 3.4% (with even more favourable terms for one to three year terms. With the increase rental yields in the first half of 2007 the economics of property investment in Singapore are seeing a sea-change.

The marked first quarter improvement in the Singapore property market raises a number of important questions; such as where is the growth, where does it come from and is it sustainable?

Private residential property values rose 4.8% in Q1 in Singapore compared to a 10% improvement for the whole of 2006. High end developments such as Marina Bay Residences and One Shenton have led the way but there are also reports that both mid-level residential properties and commercial developments are rising in value, too.

Analyses of where the impetus for growth is coming from vary. The mainstream interpretation (and certainly the one supported by the Singapore authorities) is that Singapore is in the process of launching itself into the first of division of world cities with enhancements to its status as a business and tourist centre. This will see Singapore strengthen its credentials as an international financial centre. Eric Ellis, SE Asia correspondent of Fortune magazine has a dissident, minority view that sees Singapore as the beneficiary of an enormous amount of personal investment on the part of wealthy Indonesians and that country’s Chinese community. Holdings in Singapore by Indonesians are now over $100 bn

The plans for the Iskandar Development Region (IDR) were unveiled as part of Malaysia’s 2006-2010 development plan. Commentators (and investors) are still trying to gauge how much of the enormous scope of this development will come to fruition. Given its proximity to Singapore, the state of Johor at the southernmost tip of the Malay Peninsula is surprisingly undeveloped. The IDR is designed to address Johor’s under-development relative to Malaysia as a whole and to reverse the recent downward trend in Malaysia’s inward investment.

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The development is really only at an early stage at present. However, it is hoped that in the course of the current 5-year plan it will attract RM 50bn of investment (approx. $15bn). The 5-year plan itself allows for an investment in infrastructure of RM 4.3bn with another RM 3.4bn being provided by development funds. Khazanah Nasional, Malaysia’s national development fund is the IDR’s sponsoring body and will be supplying a significant proportion of this element. Finally, it is hoped that the private sector will provide about RM 10bn’s worth of investment in the initial phase of the programme.

UlaanBaatar-Mongolia

Sandwiched between Russia and China, there lies a gold mine of resources, profit and growth known as the country of Mongolia. With a healthy economy and expanding wealth inside the country, Mongolia is rapidly becoming an investor’s ‘hot spot’ in the global arena. Much of this potential wealth arises from an ideal mixture of supply and demand. An incredibly high demand for city housing  primarily in the capital of Ulaan Baatar – combined with a shortage of land supply in the prime city areas creates the ideal investment return. Most importantly in this gigantic economic reaction lies the catalyst mining.

The mineral resources in Mongolia are enormous, providing rich supplies of copper, coal, gold, and possibly even oil. The country became the most prolific copper provider on the globe with the discovery of the world’s largest copper mine, which is expected to provide over $100 billion of ore over the next forty years. With China just to the south, exports of these natural resources are boosting the economy, creating a rising GDP (Gross Domestic Product) each year.

This rising GDP is primarily the result of high copper prices, which rose a whopping 250% since 2002, and the production of gold. Mining is responsible for nearly one fourth of the GDP, three fourths of the country’s exports, and 67% of the industrial outputs. Not surprisingly, some of the world’s largest mining companies such as BHP, Rio Tinto, Ivanhoe, and Centerra Gold are taking advantage of resources by moving in and planting their shovels into Mongolia’s rich soil.

This influx of mining organizations, combined with the already-high amount of international trade with countries such as China, is inviting countless expatriates, ambassadors and executives to the city causing much of the demand in high-end city housing.

When turning to the need for top quality housing, current figures show prices to be within the $900 to $1,300/sqm range. High-grade living rental profit is upwards of $17/sqm per month, causing average rental returns of about 21%. Profit yields from residential accommodation are the highest in all of Asia, coupled with a tremendously high 30% yearly real estate appreciation growth rate.

In addition to the constant flow of foreign business executives, half of the country’s population is dispersed throughout rural areas of the country causing a constant flow of real estate buyers from outside the city creating an unequal displacement of land ownership in the city. This, in turn, has increased demand and limited supply.

Conservative economy predictions based on previous trends can be used to demonstrate the enormous cash return possible five years in the future. Assuming that there is a 5% salary increase per annum, interest rates drop 0,5% per annum, and a conservative 20% yearly capital appreciation, a $100,000 investment would yield $362,762 five years from now a total profit of $262,762.

One concern for foreign property owners, taxes, is discounted by the surprisingly low taxes placed on property owners in Mongolia. There are no property capital gains tax and no withholding tax. Real estate purchase costs are hardly noticeable. Freehold ownership is practised in Mongolia, meaning the purchaser owns not only the property, but also the land it stands upon. This results in making an investor’s ownership rights not only the highest, but also the most secure. With no restrictions on foreign property owners, an investor is free to do nearly anything, whether it be pledging, selling, or leasing the property.

The economic future of Mongolia appears bright as more of Mongolia’s natural resources continue to be discovered, collected, and sold, and the country’s economic growth continues to rise. As the demand for high-end accommodations in the city increase, and supply decreases, investment returns will continue to climb bringing untold amounts of wealth both to the country, and to those prepared to take advantage of the growing economy.

For more information on buy-to-let real estate developments in Mongolia’s capital, Ulaan Baatar contact UK-based Property Frontiers.

Malaysia’s housing property market is taking a breather due to the current excess supply and cautious consumer sentiment, analysts say, citing hikes in fuel prices and interest rates last year as dampening the enthusiasm of property buyers.

According to government data, the overhang in the residential market increased to 22,185 units in the first half of 2006 from 15,083 units in the same period a year earlier.
Housing developers said the soft market has continued right up to the end of 2006. The Malaysian Developers Council says it expects the industry to show negative growth in the fourth quarter of 2006, continuing the weak trend of the last eight quarters.

The fundamentals remain positive for the property investment market despite the latest turmoil in the stock market, with investors especially keen on buying office and luxury residential units, consultant Savills said.

Managing director for Savills’ (Hong Kong) Raymond Lee Wai-man estimates transactions for the investment market in the private sector may hit HK$70 billion this year, up 8.86 percent from about HK$64.3 billion last year.

Senior director for investment Peter Yuen Chi-kwong pointed to favorable factors such as yuan appreciation, the reappearance of negative interest rates, continued capital inflow from overseas funds and attractiveness of returns.

As for interest rates, he said: “We can’t see interest rates increasing.”

Savills recently conducted the sale of Crocodile House and Crocodile House 2 in Central – indirectly owned by toy magnate Francis Choi Chi-ming – which was sold to an overseas fund for HK$1.07 billion. Savills also conducted the HK$1 billion sale of The Hacienda residential estate in Repulse Bay, also indirectly held by Choi, to Cheung Kong (Holdings) (0001).

So far this year, Savills accounted for HK$4.5 billion in investment deals out of the HK$7.5 billion market total.

Deputy senior director for investment Sam Mock Wai-ho said the HK$7.5 billion figure was double the figure for the same period last year, after stripping out the effect of the HK$6.2 billion sale of a 50 percent stake in Festival Walk mall in Kowloon Tong by CITIC Pacific (0267) to its joint-venture partner, Swire Pacific.

Still, some uncertainty remains, with Yuen pointing to the volatility in the equity market and the large supply of office space in 2008 and 2009 in areas such as Quarry Bay and Kowloon Bay.

Source: The Standard

Something funny is going on in Pattaya, a Thai beach resort where funny things tend to happen.
Previously best known in the tourism industry for its sleazy nightlife, Pattaya is enjoying South-East Asia’s first second-homes property boom, and the buyers are primarily wealthy Europeans and Americans.

Last year, the resort sold more than 230 million dollars of beachside condominiums, mostly to foreign buyers.

Although modest by international standards, the construction boom – there are about 300 condominium and residential projects under way in the Pattaya neighbourhood – has already raised concerns about exacerbated water shortages and rising crime against foreigners.

And the boom is pricing locals out of the market.

“Four or five years ago, you could buy any condominium unit for about 30,000 to 35,000 dollars,” said Clayton Wade, managing director of the Premier Homes Real Estate Co and a longtime Pattaya resident. “They have all at least tripled. “

The prices are being ramped up by the dearth of reasonably priced vacation homes in the United States and Europe, a growing global market for beachside property and a lot of speculation, including some money- laundering activity.

“We’ve got plenty of monkey business in this town,” Wade conceded.

Similar housing booms are taking place at Thailand’s other beach resorts – Hua Hin, Samui and Phuket – and to a lesser degree in other South-East Asian destinations, notably on Indonesia’s Bali.

And the take-off in second-homes sales is not limited to South-East Asia.

Europeans are flocking to Croatia and Bulgaria to snap up Mediterranean villas that are cheaper than what’s on offer in Spain. Americans are going south to Mexico, Costa Rica, Panama, Nicaragua and Honduras in search of affordable getaways.

The global migration from the developed world has been unleashed by a number of factors. For starters, there are a lot more wealthy people in the wealthy countries, and much of this new wealth has been generated off property.

According to estimates by The Economist magazine, the value of residential property in developed countries increased by more than 30 trillion dollars from 2001 to 2005, an increase equivalent to 100 per cent of those countries’ gross domestic products.

The Economist’s dire prediction in 2005 that this property boom is the world’s biggest bubble that is about to kaboom has yet to be actualized. Instead, the bubble has spread to more remote shores.

“Globally, what’s happened now is there are a lot of people not just buying a second home but finding that investing in real estate makes money,” said David Simister, chairman of the real-estate company CBRE?Richard Ellis in Bangkok.

The winners: Singapore, South Korea and the Philippines

Singapore experienced Asia’s highest residential property price increases during 2006, with 9.5% real (inflation-adjusted) house price rises.

There were also 9.3% real house price increases in South Korea, and 9.1% real house price increases in the Philippines. These were seen in the Global Property Guide House Price Indices, the biggest collection of residential property price indices.

Singapore’s strong 2006 GDP growth rate, at 7.9%, pushed up demand for Singapore property. The Urban Redevelopment Authority (URA) private residential property price index rose by 10% (9.5% in real terms) in 2006.

 

 

ANNUAL HOUSE PRICE CHANGE (%)

South Korea also saw a strong rebound in property prices, despite continued efforts by the government to depress the market. The Kookmin Bank’s house price index rose 11.6% in Dec. 2006 (9.3% in real terms) from a year earlier.

In the Philippines, strong economic growth and reduced inflation contributed to the continued recovery of the real estate sector. In addition, demand from Overseas Filipino Workers (OFWs) and dual citizens has been strong, pushing prices up. Luxury condominium prices in the Philippines rose 15% (9% in real terms) in 2006, following an 11% nominal price rise in 2005, according to Colliers International.

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Now the practice has come under the spotlight as an unexpected side effect of last September’s coup. Ignoring protests from the international business community, the leaders of the government installed by the military have ordered rigorous enforcement of the law restricting foreign shareholders to 49% control of companies in protected sectors such as property.

The aim was to punish the family of Thaksin Shinawatra, the ousted prime minister, who reaped a tax-free fortune by selling off their telecoms empire to the Singapore state investment agency through nominee shareholders. But the clampdown on the use of voting shares has sown confusion throughout the economy.

‘Property owners will need to consult their lawyers,’ says one estate agent. ‘It’s possible that the nominees could demand control of the holding company to comply with the law, and nobody knows who would arbitrate the price if owners were forced to sell down their voting shares.’ There are no reliable figures for the number of British homeowners in Thailand, but one experienced estate agent estimates it is in ‘the high thousands’, with about a third of those owning villas. More than 700,000 Britons visit every year.

Recent announcements from the Malaysian government look set to establish the country as a new hotspot for overseas property investment.

According to the Malaysian Prime Minister’s Office, foreigners will be able to buy property valued at more than 250,000 ringgit (£35,124) without seeking the approval of the Foreign Investment Committee or incorporating a company with local equity participation.

Following a downturn in the market in 2005, the government were anxious to rescue the property industry and introduced this new legislation to encourage investors to purchase more luxurious residences.

The recent reduction in bureaucracy for more expensive purchases could encourage more foreign investors to take advantage of the Malaysian housing market.

CH Williams Talhar & Wong, the chartered surveyors and international property consultants, predicted that in 2007, condominiums will continue as the most popular property investment for foreign purchasers.

Their survey suggested that a third of property professionals believe that condominium prices will decrease in 2007, making an attractive prospect for overseas investors.

It is also believed that foreign investors are becoming more interested in industrial property purchase.

Source: holidaylettings.co.uk