Possible Top Property Investment Market in South East Asia
Top Property Investment Market
When we speak of top property investment markets in Asia we would inevitably think of the following countries,
2. Hong Kong
In Hong Kong, authorities at the start of the year introduced a new round of transaction taxes and raised down payment requirements for both the residential and commercial sectors.
In Singapore, the government’s four-year campaign to curb home prices continued with a further round of transaction tax increases, together with a new policy tool that caps total consumer debt available from banks at 60 percent of borrowers’ incomes.
The measures have had a chilling effect on residential transactions in both cities, particularly at the high-end property segment.
Faced with an overheated property market that could foment social unrest, the Chinese government has implemented a combination of measures in what some are calling a belated response. The impact, however, is reflected in sharply declining property sales in cities like Beijing and Shanghai.
In view of a relatively healthy economy and the possibility of sustained capital flow into Asia, it is likely that the cooling measures will be intact to stabilize markets to avoid social unrest caused by soaring residential prices in these countries.
So where are the investment opportunities for property investors?
Top Property Investment Market - sgpropertyinvestors.com
Let us first look at the location of these cities in the Asia Pacific region. Of those 11 attractive cities listed, 3 of them are located West of Asia.
They are the following 3 cities in India.
Located in the North of Asia are cities like,
1. Osaka, Japan
2. Seoul, South Korea
While located in the South of Asia are cities like,
1. Melbourne, Australia
2. Sydney, Australia
3. Auckland, New Zealand
While those attractive cities found in Central Asia are,
1. Kuala Lumpur, Malaysia
2. Jakarta, Indonesia
3. Ho Chi Minh City, Vietnam
What does this imply?
Everything being equal, KL, Jakarta & Ho Chi Minh City enjoy geographical advantage over the other cities in the North, South and West regions of Asia.
As KL, Jakarta & Ho Chi Minh cities are located in the central region of Asia, travelling and accessibility to other parts of Asia is within a shorter (3-8 hours) flight away offering time saving. This makes it attractive for companies to operate their businesses out from these cities for cost saving and ease of accessibility to other markets in the region.
Air Passengers and Cargo Handled
The figures below showed the KL airport handled one of the most passengers and cargo in Central Asia.
According to the Emerging Trends in Real Estate Asia Pacific 2014 (ETREAP) by PwC and Urban Land Institute above, the following countries are top markets for property investors in the coming 2015.
Of these cities Mumbai appears to be the most attractive market. Up 12 places from 23rd to 11th in 2015. What is your take? Which city do you think would be an attractive market?
Where are the Top Property Investment Markets
While Mumbai, Melbourne, Seoul, Osaka look like very attractive property investment destinations in 2015, but how will your property perform in 5 years time? How will the market perform in 10 years time vis-à-vis the market in the region? What is the market earning potential?
We now analyze all these cities listed and see which city offer a more attractive investment opportunity for investors in the mid to longer term.
Looking carefully, you will realize the economy situation in these cities is different. Some of these cities have a more advanced economy, whereas some are emerging markets. We separated the cities below reflecting their respective economy situation. Most of us will agree because of higher costs, growth rate in the advanced economies are less likely to grow on a higher rate. Unless the properties are really undervalued in the advanced economies, chances are we are to see better possibility of profitability when investing in countries with lower property prices.
The Global Competitiveness Index
The Global Competitiveness Index 2013–2014 rankings by the World Economic Forum ranks Malaysia 24 position after Singapore (2), Hong Kong, Japan, Taiwan & Australia out of 148 countries. The report notes,
“Malaysia advances one position to 24th. Second among ASEAN countries, behind Singapore, Malaysia ranks no lower than 51st in any of the 12 pillars of the GCI and features in the top 10 of two of them. Its most notable advantages are its efficient and competitive market for goods and services (10th), its well-developed and sound financial market (6th), and its business- friendly institutional framework (29th). In a region plagued by corruption and red tape, Malaysia stands out as one of the very few countries that have been relatively successful at tackling these two issues, as part of its economic and government transformation programs. The country, for instance, ranks an impressive 8th for the burden of government regulation, although the score differential with the leader, Singapore, remains large. Malaysia ranks a satisfactory 33rd in the ethics and corruption component of the Index, but room for improvement remains. Furthermore, Malaysia ranks 15th for the quality of its transport infrastructure, a remarkable feat in this part of the world, where insufficient infrastructure and poor connectivity are major obstacles to development for many countries. Finally, Malaysia’s private sector is highly sophisticated (20th) and already fairly innovative (25th). All this bodes well for a country that aims to become a high-income, knowledge-based economy by the end of the decade. Amid this largely positive assessment, the government budget deficit, which represented 4.3 percent of GDP in 2012 (103rd); the low level of female participation in the workforce (121st); and the still comparatively low technological readiness (51st) stand out as some of Malaysia’s major competitive weaknesses.“
Malaysia is still an emerging economy. The potential for growth is higher than those of the more advanced economy where costs are already relatively high and served as an impediment for higher growth rate. Infrastructures are still under development in the country, and it is undergoing modernization. E.g. is the construction of the High Speed Rail connecting Singapore to KL City and others. Such major infrastructure development will definitely have a positive impact on the Malaysian economy in time to come. Coupled with a natural advantage of its geographic location and a huge pool of highly qualified workers, Malaysia’s trade/commerce growth rate is very likely to see better result as compared to the other countries in the region in the next few years.
Next, property prices in Malaysia are still relatively cheap as compared to the more developed neighbor, Singapore. For example, a ultra high-end residential property would cost about S$3500 psf or more in Singapore. While a commercial retail outlet or shop in the prime area can cost up to S$15,000 psf or more in Singapore. However, prime residential unit in KL City it is about S$1500 psf, 1/3 of the price of one would pay in Singapore. This is where Malaysia can be a good alternative investment market. Malaysia has escaped property investors’ radar for a sometime now. Although investment, political, social and economic risks do exist, they are relatively lower than some of the newly emerging markets. In additional, when one compare the price of property around the region, in our opinion, Malaysia can indeed fill the void left by some traditional property investment hot spots.
However, we are not suggesting you to invest in any property you may find in Malaysia, for 2 main reasons.
1. It is a big country. In the absence of proper land use planning and a concerted effort to bring in demand for the properties, the glut of properties supply may easily out strip demand by many folds.
2. It has relatively much smaller expats community. Hence rental income may be compromised.
What do you think?
Malaysia is a huge country which city is growing? Which city should you invest in? Please follow us to find out which city in Malaysia is an attractive investment spot.
Property Investment in Asia Pacific
Believe it or not our world has become smaller. What? What do we mean that our world has become smaller? There is an unstoppable trend that is happening around the world. That trend is globalization. The emergence of internet, aviation, high speed rail technology has bring our world closer together. For example it will now take about 4-5 hours to travel from Singapore to Malaysia capital city in Kuala Lumpur. With the proposed new high speed rail, the estimated the traveling time will only take about 45-60mins. What does it imply? It means that it is not impossible for someone to stay in Kuala Lumpur but work in Singapore in the future. With internet technology it is also not impossible for that person to work in the train while traveling from Kuala Lumpur to Singapore. All these are quite possible.
In additional, the emergence trend of economic blocs e.g APEC, NAFTA, EU has also hasten the speed of globalization with trade barriers and tariffs coming down gradually. This has enable many companies to take advantage of the trade and tariff incentives to invest and to set up offices within the region. Hence the impending enhancement in trade and economic activities in the region will encourage travel, movement of financial resources, human capital and maybe technology transfer. What is the implications?
We will probably see higher rate of growth in these developing countries where flow of investment would be higher as businesses can enjoy cost benefits in operating in these countries. Of course currently there are risks involved that will the major stumbling block to the continuous growth. The major risk involve being a political one. While the recent economy data is quite encouraging however risks still exist in some these emerging markets.
Real Estate Investment in Emerging Markets
While the trend and data supports the economic growth in many of these emerging markets, however caution must be practiced when investing property in these countries. It is not to say we should not be involved in investing in these countries, however, the risk involved is relatively higher in these countries even though the prices of the properties are many times lower than in more developed economy. Therefore, know what you are going into, or alternatively choose to invest in a country or countries where risk is slightly lower.
Yes, high risk may translate to higher returns, but there is no guarantee this theory work all the time and may prove be painful for some who might have taken excessive risk. So look into the risk involved and weigh your options carefully.
In our next article we will discuss the country in South East Asia that in our opinion is an attractive to invest in and the reason for its attractiveness.