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Asean And It’s Impact On The Property Industry In Malaysia

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There is little doubt that ASEAN’s property market holds great potential in some of the 10-member countries with its young people eager to make their mark in the world. Malaysia took a big step forward in 2015 becoming ASEAN’s Chairman for the fourth time since its formation. One huge step for ASEAN, one giant step for Malaysia. The Association of South East Asian Nations (ASEAN) comprises ten diverse nations and has been around since 1967. ASEAN leaders adopted the ASEAN Economic Blueprint in 2007 with a master plan to guide the integration of the regional economies into a single market and production base. They then established the ASEAN Economic Community (AEC) which provides businesses with seamless access to a market of over 600 million people – 8% of the world’s population – living in a land area of 4.46 million sq km.

Global consultancy firm CBRE’s ‘ASEAN Economic Community noted that conducting business in each member country is different. While it’s generally transparent and relatively easy to do business in Singapore and Malaysia, other countries like Myanmar, Laos and Cambodia have a lot of catching up to do in terms of creating a more conducive environment for businesses.

Malaysians can look forward to a great year ahead starting from February, especially in the field of real estate. From the real estate perspective however, the ASEAN integration could improve regional connectivity in terms of investment in roads and rail transport networks, and further the growth of the local urban development and real estate markets. In Australia for example, a 4 percent profit from investments is considered a good year. In Malaysia, developers and property investors are earning up to 25 percent in profits. Growth in 2016 is poised to be comprehensive and should be a contrast from the sluggish of 2015.

Malaysia’s gross domestic product (GDP) is expected to grow by 5.6 per cent this year, according to Malaysian Institute of Economic Research (MIER), riding on the advantage of ASEAN and is well ahead of other parts of the world. “In large part, the ASEAN Tiger Cubs present an ‘enjoy it while it lasts’ story,” the report added, referring to the combined economies of Indonesia, Thailand, Philippines and Malaysia that is worth US$2 trillion.

Having said that, Malaysia needs to aggressively come up with strategies and policies to adjust to the increasingly complicated and challenging globalised environment in property investment. For example, policies have to be more investor-friendly. The government can grant more incentives in areas with huge development potential due to its economic advantage or underdeveloped areas that would reap great benefits from the participation of foreigners, a concept that is similar to Medini in the Iskandar region. With regard to cooling measures however, this should not be applied across the board but should be more segment-specific and targeted at specific problems. On the other hand, this has been a challenging year for Malaysians with the imposition of GST, difficulty in obtaining financing as well as, the increased cost of living.

International property consultant and speaker, Dato’ Sri Gavin Tee is of the opinion that the impact of Asean integration, targeted at the end of 2015 in the form of AEC (Asean Economic Community), will have the “Asean Effect”. Tee announced the arrival of “The Greater SEA Era” (Greater Southeast Asia) as further liberalisation takes place down the road among the 10-member Asean states, this region, which currently is the fastest-rising economy in the world, may be the best place to scout for properties due to its huge upside potential, he said.

Property experts such as Tee, and many more from around the globe are of the view that Asean could turn out to be the biggest beneficiary of the current global economic slowdown. But Malaysia needs to come up with more incentives to stimulate its property market as competition intensifies with the coming Asean integration.According to Tee, Asia on a whole can no longer be seen merely as emerging economies, but should be considered a bona fide global player that has entered a phase of explosive growth. He added that 80 per cent of the world’s biggest metropolis will be located in Asia within the next 10 to 20 years, and that Asia will be home to 60 per cent of the global population. Not only that, the middle class is rapidly growing in Asia 60 per cent of the world’s middle class will be based in Asia.

Time can only tell if the promises of the AEC will be realised when it finally commences at the end of 2015. We have also recently completed negotiations for the Trans Pacific Partnership agreement (TPP), which had taken several years.  Althought we do net yet have details of that agreement, we can assume that strengthening the AEC in the post-2015 era will be crucial to ASEAN and its business partners, particularly as market access issues in Laos, Cambodia and Myanmar, have presented the most serious challenges for the AEC.

Another report from Knight Frank LLP – the international property consultancy, shows continued growth in Thailand, a very hot market in Bali, and a rising star in the Philippines. Malaysia is singled out as a private island hotspot. Malaysia, where foreigners can already own land, is ASEAN’s premier destination for private island ownership. Luxury yachters looking for adventure travel all know about the Western Pacific’s Coral Triangle, and Malaysia’s Northern Borneo coast features numerous private islands within it. These emeralds in the turquoise sea can be had for much less than many people would expect, and give the height of exclusivity to their owners. Islands can be bought already developed, or still in their pristine, natural states.

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INTRA-ASEAN REAL ESTATE INVESTMENT ALREADY SIGNIFICANT AND LIKELY TO GROW

Cross-border real estate investment within the ASEAN region has been concentrated

around Singapore, both as the largest recipient of cross-border investment flows in the region, but also as the main investor itself within the ASEAN region.

These figures are slightly misleading given the number of institutional investors based out of Singapore (deploying capital originating from throughout the world).

However the transparent and liquid Singaporean market has certainly been seen as a relative

“safe haven” when compared to some of the additional risks elsewhere.

As the AEC targets are met, the aim of strengthening capital market integration

across the region will boost real estate investment, while bilateral tax agreements between all the member states will improve transparency and reduce risk.

As capital is more efficiently allocated across the ASEAN countries, and raising

capital across borders becomes easier, we expect investment volumes to increase and pricing to become more straightforward.

The opportunities therefore for intra-ASEAN investors and for external investors looking for exposure into this growing market are significant.

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