Investment in ASEAN
Taiwan Goes on a Shopping Spree
Property, equities, bonds, currencies... the bull is roaming the markets of Southeast Asia, and ASEAN has taken the place of the U.S. and Europe in the hearts of Taiwanese investors.
Taiwan Goes on a Shopping SpreeBy Hsiang-Yi Chang
From CommonWealth Magazine (vol. 517 )
During the Lunar New Year holiday, two large tour buses pulled up in front of Malaysia's premier address, Kuala Lumpur's tourist landmark the Petronas Towers. The more than 50 nattily attired Taiwanese tourists that alighted, however, were not there to take in the sights but to be guided through model units at a luxury housing project under construction in the area accompanied by local lawyers and bankers.
Each luxury apartment has usable floor space of 25 pings (about 82.5 sq. meters), is fully furnished and comes with a parking space all for one million Malaysian ringgit (about NT$9.6 million). More than a few of the Taiwanese guests signed on the spot, paying deposits with credit cards. Some even bought four or five units.
"In Taiwan, a rate NT$400,000-plus per ping would only get you something in a non-exclusive area on the outskirts of Taipei, but here you can buy in the capital city's most exclusive area. You not only get rental income, but the potential for future property value increase is even greater," says 37 year-old Ms. Huang, an airline cabin crew supervisor. This was Huang's third fact-finding trip to Malaysia with her husband, who also works in the airline industry. The couple ultimately decided to buy two units and become "ASEAN landlords."
Others in the group included retired teachers, technology executives and real estate speculators flush with cash.
A Taipei City councilor recently asked a friend familiar with developments on the Asian mainland: "I just want you to tell me, will the Trans-Asian Railroad be built?" Upon hearing "it's going to get built and some segments are already operating" for an answer, she duly showed up at the Kuala Lumpur briefing the following day.
For nearly a year now, as the economies of the Association of Southeast Asian Nations (ASEAN) boom, groups of Taiwanese jetting off to various ASEAN countries on "property market fact finding missions" have become quite the trend.
Malaysian, Thai Properties Hot
"I've flown to ASEAN [nations] at least once a month over the past year. I've lost count of the number of trips I've made," says Lin Guangyan, spokesman for the International Asset Information Center for local realtor Taiwan House.
Two years ago, Taiwan House began offering agency services for units in select Malaysian property development projects, organizing tours of the projects for groups of prospective clients. The initial response was tepid at best. Beginning last year, however, interest exploded and tours were booked solid.
Now, fact-finding tours of the Malaysian property market have become "incredibly popular," Lin reveals. Each group comprises 40 to 50 prospective property buyers with tours organized twice monthly. Tours are booked solid through mid-year.
Last year Taiwan House acted as agent in the sale of more than 500 units in Malaysian development projects alone, with total transaction value topping NT$10 billion.
And interest is not merely limited to Malaysia, with numerous Taiwanese investors recently showing similar interest in property markets in ASEAN members Indonesia, the Philippines, Singapore and Thailand.
Among those, interest in Thailand, a familiar holiday destination for Taiwanese, has been relatively strong. Even domestic financial information network cnYes.com has gotten in on the act, organizing fact-finding tours and agency services for prospective buyers of Thai and Malaysian properties.
Although the "Thailand Groups" can't compare in scale with the "Malaysia Groups," over the past year about a hundred people monthly head off to Thailand to look at properties and invest there, one industry insider notes.
In 2015, the ASEAN member states will merge their economies into a single market. ASEAN member economies have been showing vigorous growth, and that has led to an outbreak of "ASEAN property fever" in Taiwan.
Fueling that fever has been a return of easily six percent or better on rental income, and with more hot money pouring in, the "conceivable space" for further rises in property values there is virtually inexhaustible.
"Previously, the majority of Taiwanese investors were most keenly interested in China properties. But the future prospects there are now unclear, and disputes over property transaction rights are also numerous. In Taiwan, investors are subject to luxury taxes, real value assessments [for taxation purposes] and other official housing policies," one investor surnamed Hu says. "By contrast, ASEAN is growing rapidly, the possibilities are numerous, what with the Trans-Asian Railway to eventually provide a link from China all the way through to Singapore. Add to that the low interest rates and investment capital flowing in from a variety of countries, and it's hard to envision [property prices] not rising."
During 2009-2010, before Taiwan imposed its luxury tax, Hu made himself a bundle, with around NT$1 billion on hand. Even though he's unfamiliar with the local property markets there, today he's planning on "sinking some cash into ASEAN" to test the waters there.
Three Key Hurdles for ASEAN Landlords
According to statistics from the U.K.-based Global Property Guide, property values in Singapore, the Philippines and Malaysia have risen 30 percent over the past three years. Thailand and Indonesia have also seen property values rise 20 percent during the same period.
It's not just Taiwanese buyers investing in ASEAN property. Plenty of investment capital is also flowing in from Japan, South Korea, China, and Hong Kong. But experts advise that sinking cash into the ASEAN property markets is not without risk and note three key hurdles to which investors must pay heed.
Hurdle One: Varying Investment Laws
First of all, due to the differences in regulations governing investment by foreigners, buying property in the various ASEAN member states is a lot different than buying in Taiwan.
For example, says Lin Guangyan, the Taiwan House spokesman, in Indonesia and the Philippines foreign individuals may not hold direct property rights; property purchases there must be made in conjunction with a citizen of said country or through an asset management company, REIT fund or other mechanism securing indirect property rights. In Thailand, foreigners may own an apartment but may not own stand-alone houses or land.
In Malaysia, legal regulations guaranteeing citizens right to purchase low-cost housing mean that foreigners may only buy properties with a net value of RM$500,000 (about NT$5 million) or higher.
Hurdle Two: Climbing Tax Rates
The next thing investors must also consider is that property taxes in ASEAN nations may gradually rise.
In Singapore, for example, a new law was passed in January of this year specifically targeting property purchases by foreigners (including permanent residents), subjecting them to tax levies of five to seven percent, and limiting the percentage of the purchase which may be financed through lending.
Thailand levies no land value tax, house tax or property transaction income tax; buyers need only pay a stamp tax at the time of transaction. But in both Malaysia and Thailand, income tax of 20 percent or more must be paid on rental income.
"There's a possibility that each ASEAN nation will in the future follow Singapore's lead in boosting taxes to cool down [the market] in order to prevent [foreign] hot money from sparking inflation. Investors should take this into careful consideration," suggests Pauline Ng, an investment manager and Malaysia and Singapore country specialist at JP Morgan Asset Management (Singapore) Ltd. Whether investing in financial markets or the property market, investors would be wise to avoid relatively inflationary countries.
Hurdle Three: Unfamiliarity with Political, Economic Trends
Finally, as most Taiwanese investors are not particularly well-versed in the political and social conditions extant in ASEAN nations, it is difficult for them to get a read on the shifting winds of local property markets.
Early last year, for example, contentious border issues between Vietnam and China resulted in an indefinite suspension of cooperation between the two countries in building a new highway, the establishment of a duty-free zone and other economic development plans, resulting in a sharp decline in property markets in Hanoi and the region around northern Vietnam's border with China.
Experts advise investors to make judgments on long-term property market trends in a given country based on fundamental factors such as economic growth rates, trends in urbanization and population demographics. They should also avoid over-leveraging themselves to reduce risk.
Perhaps more attractive than property market speculation are ASEAN-based mutual funds, which offered nearly 20 percent returns last year and continue to rise this year, attracting keen interest from Taiwanese stock players.
Last year, Philippine and Thai equities markets led the ASEAN pack with 30 percent gains as ASEAN become the highest growth region among global equities markets. Whether or not that trend will continue has become the focus of great concern among investors.
"Judging from international capital flows, economic growth projections and other indicators, ASEAN markets will continue to rise this year, be it equities markets or bond markets," says JP Morgan's Pauline Ng.
Despite uncertainties like the ending of the third round of "quantitative easing" in the United States and the depreciation of the Japanese yen, international hot money continues to pour into ASEAN equities markets. An anticipated wave of depreciation among ASEAN currencies has also yet to materialize, and indeed, those currencies have continued to rise. Equity market indices in Thailand and Indonesia continue to set record highs.
On top of that, Thailand, Malaysia and Singapore are this year embarking on massive economic infrastructure construction plans and JP Morgan's Pauline Ng is bullish in her forecasts, expecting better than 10-percent growth on average across the ASEAN region.
Kuo Yu-lan, ASEAN fund manager for Fidelity Worldwide Investment says Northeast Asian investment destinations Japan, South Korea, China and even Taiwan, will be facing problems related to aging populations, declining workforces and other challenges over the next five years.
In contrast, ASEAN nations will continue to reap a population dividend. In addition, with a growing middle class in those nations, domestic demand stock plays in such sectors as telecoms, foodstuffs, and property development will continue to be attractive in the long-term, despite having already seen a surge in value, driven by growing domestic demand in the emerging ASEAN nations.
Translated from the Chinese by Brian Kennedy