We have all heard of our fair share of horror stories on how property investors who purchased overseas projects marketed in their country of residence got burnt doing so. In Singapore, there is widespread cautiousness and scepticism on foreign property investments because the promised capital gains and rental yields did not materialise, or in some extreme cases, the developers went bust. This has thus prompted the authorities to regulate the marketing of foreign properties in Singapore.
Having said that, I strongly believe that two major factors are to be blamed when investors get burnt – greed, as opportunities in Singapore’s market dry up, combined with ill-informed choices through listening to one-sided sales pitches. It is the choice investors make that is the root of all disappointments. Since international real estate offerings are infinite as opposed to capital for investment, there is no real reason to blame lousy investments on the product itself.
With various internal problems made worse by China’s economic slowdown, most countries in the region are negatively impacted. Regional real estate generally experienced a poor 2015 and experts are predicting that such sluggishness will exacerbate in 2016 and beyond. Vietnam is a single exception to this.
In Malaysia, the loss of credibility in the government of Prime Minister Najib Razak has stalled the economy; reforms have not been effective even as political infighting continues. Notably, the Ringgit’s volatility still persists and the after-effects of the doubling of the minimum property price to above USD240,000 that foreigners can buy are still being felt. Malaysia has an uphill task of bringing credibility back for its government before economic progress can be achieved in the near term.
For Indonesia, President Joko Widodo’s first year in office after an election campaign that promised much received a poor report card. Marred by several high profile policy U-turns and a depreciation of the Rupiah, investors’ confidence took a hit. In addition, a 20% luxury tax on properties above USD145,000 did not go down well with developers and investors. Indonesian economy continues to under-perform and will continue to do so in the near term.
In Cambodia’s case, the initial real estate hype seems to be wearing off. Cambodia currently has neither the demographics nor economics to sustain its real estate market which is driven by foreign developers constantly adding high-end product supply to its inventory. With a population of 15 million and only 1.5 million populating Phnom Penh (the capital city and the largest urban area), yet taking into account the small percentage that can afford to own a high-end property in Phnom Penh, investors should be wary. Moreover, slow take-up rates of commercial spaces signify that foreign direct investments are not flowing in accordance with over-optimistic projections. Until overall progress in Cambodia reaches a sustainable level, it is wise not to invest in Cambodian properties.
Across the border in Thailand, its economy is still sliding. A second year of military occupation has not been able to stop the decline. Once a healthy real estate market, investors on the ground are feeling flustered as they found it hard to find buyers for their investments or tenants. The oversupply of properties in a declining economy is the cause. The withdrawal of Russian and Chinese investors from Thailand due to the troubles in their home economies has strongly affected Thailand’s once robust second home market in holiday destinations. If leadership changes are not forthcoming, Thailand’s star will continue to diminish.
Philippines continues its strong performance in real estate singularly driven by its “business process outsourcing” sector. Fueled by a stable political situation, sound economic policies, and educated English-speaking population, foreign direct investments will continue to increase their business operations in the Philippines. However, the Philippines is experiencing what experts have identified as an extended bull run in its economy; the oversupply of real estate is already showing. Industry insiders are beginning to be worried about how long more can growth be sustained, and such sentiments are reflected in a growth slowdown projection. Prices have generally increased since 2010, and as real estate is cyclical in nature, a downward trend might be nearing.
A relative newcomer, Myanmar’s growth has been strong if not spectacular. Growth occurred at the expense of legislation keeping up. There are still no clear laws on foreign property ownership and foreign investors are still not able to buy property directly under their own names. A period of political stability after the 2015 elections will be good for economic progress, and judging by the time needed for developing countries which have just opened up their market to foreign investments, a long period of gestation is required to get their house in order before real progress is achieved. Risks associated with investing in Myanmar’s real estate due to a lack of legislation remains very high.
Last but not least, Singapore, the blue chip of real estate investments in the region – continuous enforcement of cooling measures that shows no signs of being lifted and the policy limitations on foreign investors have contributed to the persistent decline in real estate over the last 2 years. Prices and transaction volume have fallen continuously, adding on to the general economic slowdown Singapore is experiencing; consequently, local real estate investors are increasingly turning overseas in search of profits. Singapore remains unfavourable for real estate investments until cooling measures are lifted.
Vietnam – the exception
Despite the above, Vietnam is the single exception to poor real estate performance in the region. Having successfully navigated out of its share of economic problems that lasted from 2009 to 2013, Vietnam’s economic reforms put in place in 2012 have taken root, rectified economic woes and made her economically more resilient. The positive effects of the reforms are well documented and publicised in the media today. Vietnam is embarking on a new boom cycle in its real estate industry as other regional countries seemingly look to be at the respective ends of their real estate bull run.
Legal reforms that allow foreign property ownership gaining traction, political stability even after leadership renewal, favourable demographics led by the proliferation of the middle class, and strong economic growth due to reforms in banks and state-owned enterprises, free trade agreements, manufacturing and infrastructure developments, have all played a major role in Vietnam’s ascendance into the very top of property investment destinations.
In 2013, its property market bottomed out and starting from 2014, it recovered and has been on the upward trend since. Property price increases, high supply absorption rate and swelling in foreign direct investments are the new norm.
By investing in HCMC properties, investors are looking at a current average of 5 to 8% capital gains annually within the next 3 years as well as a gross rental yield of 6 to 8%. Investment quantum starts from USD88,000 disbursed progressively over 2 years. Own a property in a prime city location with just a down payment of 5 to 10% of the property’s price.