In recent years, China’s government has been sticking to the principle that houses are used for living in and not for speculation, thus imposing restrictions on domestic real estate transactions by means of limited purchase, property tax and higher lending rates. This has pushed China’s home buyers and investors to shift their attention to overseas real estate markets. As a result, China replaces the U.S. and as the world’s largest source of cross-border real estate investors, according to the 2019 H1 Global Cross-Border Real Estate Investment Data Report released by uoolu.com.
As compared to China, the purchase of properties in other countries is not as restricted in terms of the number of units that can be purchased. Apart from this, there are obvious advantages as well:
While demands of cross-border home buyers lie mainly in investment, more have started to consider other value-added aspects, besides the capital appreciation and rental income. Home buying is also driven by factors such as immigration, education, and retirement. Investors are now trying to actualise more demands at the same time, for each property purchase.
By investing in properties outside China, the investors can also enjoy other additional benefits such as a better living environment, first-class medical care, international educational resources, easier access to realise multinational business expansion, a more convenient visa policy and a chance to acquire permanent residency in a foreign country.
However, as traditional real estate investment markets in developed countries such as the U.S, the UK, Canada and Australia become nearly saturated, China’s investors have started to pay more attention to Southeast Asian countries, especially those in the emerging markets.
Cross-border real estate investors with a budget of RMB 1 million to RMB 3 million, is now accounting for 67% of the total population in China. Compared with far-fetched property prices in traditional real estate markets such as North America, Europe and Australia, home prices in Southeast Asian countries mainly range from RMB 11,382/m2 (Kuala Lumpur, Malaysia) to RMB 32,104/m2 (Bangkok, Thailand). The latter’s price range is similar to second-tier cities in China, thus making it more affordable to Chinese investors. Besides, there are less taxes and fees related to property purchases, and payment methods are very conducive for investment under limited budget.
Most importantly, properties in Southeast Asian countries are also commanding a high rental yield. Apart from a low investment threshold, investors also pay more attention to return on investment (ROI) in the real estate market. It is reported that a city with more than 5% of ROI can be rated as suitable for investment and cities such as Manila, Phnom Penh and Bangkok all fall within this category. In addition, a good majority of South-East Asian Countries allow freehold ownership of both land and dwelling. With the rapid urbanisation and the development of these cities, land prices in these countries can only increase, which in turn, will drive the property prices higher.
As for the developed countries such as Singapore and Malaysia, whilst there are certain entry thresholds for real estate investment, asset preservation and ROI are more evident as compared to properties in China.
Secondly, the largest age group of Chinese investors are those between 30 years old to 49 years old, which accounts for 78% of the total population. Majority of these buyers have reaped the fruits of the real estate and internet market boom in China years ago.
Not only are they equipped financially, these buyers have also become much more affluent, with the ability to source for overseas real estate investments. These buyers have now moved beyond the scope of investment as other intangible considerations like education and retirement become major factors in overseas property purchase. With international schools in China now over-priced, many of these Chinese buyers have found a cheaper and yet authentic alternative in South-East Asian countries.
The climate and ecological environment in some of these countries are also more suitable for own stay, especially for retirees. Coupled with a lower cost of living, more and more Chinese are beginning to migrate to these countries with their family through visa programs such as SRRV in Thailand and the Philippines, and MM2H in Malaysia.
Thirdly, like most investors, property value appreciation potential is another key factor in deciding to acquire overseas properties. Most investors would definitely go for a currency that is strong enough to hedge against any potential depreciation risk when selecting the countries to invest. According to Uoolu’s user inquiries, Thailand is still firmly the No.1 in cross-border real estate investment due to the currency advantage. In the past 5 years, the US dollar depreciated by only 1.5% against the baht. Thailand’s baht is exceptionally strong amongst the regional currencies and this looks to be a sustained trend.
Last but not least, the “Belt and Road Initiative” rolled out by the Chinese government has enabled stronger diplomatic relations and increased investment with the South-East Asian countries. This is clearly evident in the huge infrastructure investment by the Chinese government in South-East Asia notably the East Coast Railway Line in Malaysia and the Thai-Chinese Rail Line. These cross-border partnerships between nations will only boost the development of the Real Estate market in this region. In addition, these countries also use preferential tax policies and zero foreign exchange control to encourage foreign investment and foreign enterprises to enter their market, hence attracting more and more Chinese companies and entrepreneurs.
How popular are Southeast Asian real estate markets? Let’s have a glimpse from the following hot investment destination countries.
According to Thai media reports, one in five home buyers in Bangkok comes from China. Thailand is the No.1 tourist attraction in the world, and it’s the same to the Chinese. Due to its huge population and high foreign visitor influx, Bangkok is also a good rental market.
Since 2014, the GDP of Thai construction industry has risen from 55 billion baht to 77 billion baht. The rapid development of the construction industry has laid a solid foundation for the real estate industry, which is another strong economic pillar after tourism. Over the past 2 years, Chinese Internet giants such as Alibaba and JD have invested in Thailand. Recently, China’s Huawei was invited to assist Thailand in developing the infrastructure and testing centres needed for 5G technology. Thailand is becoming more and more popular among Chinese investors, let alone real estate investors.
Singapore, famous for its "Garden City" label is definitely one of the most livable cities in the world. Due to its strict law enforcement and high-quality education, Singapore is also one of the safest and cleanest cities in the world with a large ethnic Chinese population.
A country where English is widely spoken, Singapore is also known for good governance, political stability, transparency, efficiency and ease for doing business. This has helped put Singapore on the radar among foreign investors and made it an attractive property market. Another reason why investor like Singapore is the strength and stability of its economy and currency.
Compared with the heated real estate market in China, Singapore's property prices are relatively stable and suitable for investors who seek asset security.
From the perspective of exchange gains and losses, Malaysia has the lowest risk for asset allocation. Although the exchange rate fluctuates, it does in a very small range. Compared to the housing prices in more developed countries, Malaysia's investment cost is also far lower.
For example, apartments in Kuala Lumpur, the capital of Malaysia, cost one-tenth of those in Hong Kong, Singapore and Tokyo per square metre. They are also much cheaper than those in Bangkok, Manila and Jakarta. Malaysia's GDP per capita and gross national income per capita are also far lower.
The opening up of Vietnam's real estate market saw much marketing efforts aimed at overseas investors. According to the data from CBRE, the proportion of Chinese investors buying luxury houses in Ho Chi Minh city in 2018 rose to 31% from 2% in 2016. Vietnam's famous tourist attraction, Nha Trang, also attracts numerous foreign investors due to its relatively low price.
Since 2013, the Philippines economy has continued to grow, and home prices have risen along with it. In 2016, home prices in the central area of Manila already exceeded RMB 20,000 /m2, and in the last two years, risen to more than RMB 30,000/m2.
The total land area of the Philippines is about 290,000 square kilometres. The Philippines has a large population (the medium age is 24) and being a small territory, the housing supply is inadequate. As the population of the Philippines continues to grow, it is clear that such a trend will inevitably push up land prices, home and rental prices.
By virtue of low investment thresholds, high return on investment, robust economic growth, comfortable living environment, strong currencies and various preferential policies, Southeast Asian countries have been attracting cross-border real estate investors from other countries, especially from China. At present, the growth rate of Southeast Asian countries is still high, and real estate professionals point out that there is still a lot of room for development in Southeast Asian countries. Due to the abundant labour force and low labour cost in Southeast Asian countries, manufacturing industry has been shifting to Southeast Asian countries, which has also contributed greatly to rapid economic growth.
If investors want stable returns, then Thailand, Malaysia and Singapore are for their picking. These three countries have little investment risks and sound real estate markets. For investors looking for rental income, choose the Philippines with the highest rate of ROI. Vietnam, being a relatively new real estate market, has huge potential as well. For investors looking for property investment returns, there’s still “gold” in Southeast Asian real estate markets to be dug.
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