Southeastern charm

Investment in Asia Pacific is all about liquidity. Cash rich sovereign and institutional funds reinvesting in the region are redefining risk and the concept of returns, value-added property is the order of the day, and unconventionality is being embraced. Those ideas are trickling down to individual investors too. With the lure of strong rental income, private investors are snapping up property in cities like Bangkok and Kuala Lumpur. But as more and more buyers turn their attention to those same locations, savvy investors are casting a wider Southeast Asian net.


The Big Picture

Southeast Asia represents half of the world’s population, and accounts for dozens of cultures and hundreds of languages.
The region’s diversity is one constant, the other is its status as the world’s fastest emerging economic and property market. Despite restrictions, political coups and lingering stories of shady developers, Thailand’s secondary and retirement home market is among the most popular. Rising costs have not deterred developers, and prices remain relatively affordable — incredibly affordable for Hongkongers.

“Thailand is hardly an emerging market these days, so some of the emerging markets are more competitive price wise,” begins Colliers International Managing Director, Valuations & Advisory Services, Asia, David Faulkner. Though Thailand, and to a degree Malaysia, still tops investment destinations, Indonesia, the Philippines, Cambodia, Myanmar and Vietnam continue to emerge as viable alternatives.

“Generally speaking, these emerging markets continue to seek inbound investments, especially into the residential market,” adds CBRE’s Desmond Sim, Head of Research for CBRE Singapore and Southeast Asia. “The natural tendency is for some investors to look to either benefit from having the first-move advantage, or any potential continued growth from the emerging market.” That said, such investments often demand certain criteria are met: government stability that ensures investment conditions stay steady; commitment to infrastructure; welcoming investment climates, on both policy and legal fronts; and familiarity with the physical place or existing business or personal connections, the kind that have underpinned purchases in the UK, Australia and Canada in the past. 

the philippines

Where to Go

According to PwC’s Emerging Trends in Real Estate: Asia Pacific, Indonesia is facing an office and residential stock glut, with the exception of properties near central Jakarta and LRT stations (overall office vacancies were 30% in 2017). More high quality residential projects are scheduled for completion this year, but policy is still restrictive for both big and small investors. In the Philippines, the market is healthy, but PwC noted, “Concerns over the U.S. base rate increases, together with domestic political issues, have been a drag on sentiment among foreign investors.” The eventual relocation of the stock exchange to shiny new Bonifacio Global City in Manila could transform the area into something akin to Canary Wharf.

Nonetheless, Indonesia and the Philippines face some uphill battles, among them haphazard (and restrictive) buying regulations in the former, and an unsavoury political mood in the latter. Ultimately, “I don’t think Indonesia and the Philippines are significantly riskier than Thailand, which has its own political issues and foreign ownership restrictions. [Philippine president Rodrigo] Duterte may be high profile, but he has a good economic team behind him,” says Colliers’ Faulkner. 

Vietnam is PwC’s regional star, continuing to draw positive comparisons with China of 15 years ago, as it began to industrialise. PwC predicted the strongest office rental growth in SEA for 2018 would be in Ho Chi Minh City, positively impacting property values overall, with affordable and mid-priced residential property, based on demand, becoming the wise choice. The downside: land prices are skyrocketing, particularly in HCMC, pushing up residential prices and office rents. Developers could begin to back off, and some buying restrictions, while loosened, remain in place. “Vietnam has seen a significant rise in interest from foreign investors over the past year and is a key target for this year. The difficulty is in finding good projects to invest in, particularly for larger investors,” notes Faulkner.

phnom penh

The Long Run

The markets with the most room to grow remain Myanmar and Cambodia. The 2015 election that saw Aung San Suu Kyi win a majority, Myint Swe’s current presidency and easing sanctions have helped Myanmar with its international image and drawn attention from major hotel groups. Nearly 2,000 kilometres of coastline help but tourism isn’t as liberal as in neighbouring destinations, and drug trafficking, corruption and military influence in government are concerns. The overseas property market is nascent at best, though foreign nationals are allowed to purchase (as of January 2016) condominiums in select buildings (to 40%). But the law is muddled, and as prices in Yangon fall (41% between 2014 and ’17, 22% in the luxury sector), Myanmar remains a prospect. “Current condominium selling prices in Yangon are still very much higher than anywhere else in Southeast Asia — making it a risky investment in the short run," Colliers’ Joshua De Las Alas told The Straits Times in 2017.

Then there’s Cambodia, tapped for nearly a decade to be the next great investment location. Well over 10,000 condo units are set for launch this year, and the local market for residences is predicted to pick up by 5%. While Cambodia faces many of the same challenges as Myanmar — environmental degradation, corruption, political unrest — it has one of the region’s fastest growing economies (approximately 6% per year for the last 10) and a robust tourist trade. Cambodia sits within the Belt and Road Initiative’s sphere, and though the plan has its detractors, and Thailand and Vietnam remain options nearby, Cambodia’s dollarised economy, low wages and taxes, liberal government policies and access to wider markets are perks attractive to investors. 

Ultimately, Southeast Asia’s markets run the gamut from mature safe havens with low, slow but nearly guaranteed returns (Singapore) to growth potential plays (Vietnam), and each will depend on an investors’ risk tolerance. As CBRE’s Sim succinctly sums up, “Different strokes for different folks, I guess.”