Pros And Cons Of Investing In Asian Commercial Real Estate
November 22nd, 2013 by Diane Moore
What Asian countries are the champions in the real estate? Who turns out to be the favorite one? Where are the best Asia’s locations to invest in commercial real estate? These are the questions a potential real estate investor should ask him or herself.
Every Asian country has its own market characteristics; from the rates for mortgage, interest rates to the availability of land and urban development. Every Asian country displays distinctive real estate characteristics. If you play it in the right way, you win big. That’s how simple it is. That is the beauty of Asian commercial real estate. Countries such as India and China have turned out to be major players on the economic scene in the recent years due to the shifting demographics internally and all over Asia.
This change has resulted to consumerism increase, and confident investors should consider taking advantage of this opportunity. The populations in these 2 powerhouse nations have been constantly evolving to form a solid foundation for an amazing success story.
The perfect demographic breakdown for a sturdy economy is one that favors working old individuals and tiny families, without an overpowering burden from those that are less possibly to add GDP, including children and the elderly. Over the last decade, with millions of new candidates into the labor force, many Asian countries are picturing this same situation, giving them a “demographic advantage”.
Asian nations have experienced a change from a family-oriented lifestyle to a career-based lifestyle, as people in their twenties choose waiting till they have successful careers to settle down. This has enabled youths to move forward with their careers and make more money than they would previously have been able to. In addition, this change hasn’t only brought growth in the number of the employed, but also increasing the demand for property such as houses, and consumer products- thus intensifying their internal economies.
Commercial real estate investors should have a look at various Asian economies as a chance to invest, but at present the most important country to give a try is China. China is the perfect structure for growth and development, and can achieve a lot on its moderately low-level of debt. And for the coming thirty years, infrastructural projects will be the major part of China’s development- the key to long-term investment.
Top 5 Places to Invest in Asian Commercial Real Estate
Singapore, Hong Kong, Malaysia, India and Shanghai – The Big Five
The Big Five are absolutely on the front-lines in matters of economic success, global transparency, social security, and urban development. Unlike other Asian nations, these states have opened their doors fully to the global investors. The cities offer outstanding infrastructure, well-established retail and commercial facilities, making it very attractive to foreign investors. The following is a good description of every region’s market attributes; what distinguish them, which sector is appropriate for each state and what are their current market trends regarding real estate.
Singapore falls as the 18th wealthiest nation in the world in terms of GDP per capita. In addition to its safe, clean and green environment, it boasts rental yields of 4-10 percent particularly in prime areas. Its population is deemed to double by 2050, which to most investors represent exceptional growth in demand and return on investment.
At present, Singapore is experiencing an all-time expansion in retail. The government is allowing investors to venture into glamorous hotels, high-end celebrity dining, new casinos which then accumulate into a big success in the retail property market.
2. Hong Kong
Hog Kong is the 11th largest trading entity in the world. Several global companies selected Hong Kong as their gateway to the rest of the Asian market as it’s an ideal mix of cultures from both west and east. Though Hong Kong is renowned for its rocket-high property prices, real estate yields in the region are the most rewarding and even Forbes agrees that.
In fact Hong Kong is listed by Forbes as one of the best cities to invest in commercial real estate, particularly in office spaces. Because of a constant huge number of experts in the region, rentals are highly in demand. Rental at Cheung San Wan and Traditional Center is said to shoot up to 52%!
Among the top 5, Malaysia has the lowest buying cost between 3.4% and 6.7% of the total property value. Even with the financial crisis in America, there is no economic recession for Malaysian developers. Big Malaysian developers such as Bandar Raya and SP Seita Bhd reported the largest revenue to be ever recorded at total revenue of $502.4 million USD!
Situated on the tropical coast, Malaysia offers widespread white sandy beaches which attract many tourists from all across the globe. With comparatively low cost of living, steady economic growth, and attractive prices for property, you definitely have nothing to lose.
India is the next up-and-coming market. It’s the only player that’s in a position to keep up with the unbelievable economic growth of China. India is certainly among the fastest growing economies of the world. Property prices in India rose at nearly 20% as a whole, in some cities like Mumbai and other National Capital Region property rose up to 50 percent.
Although the prices for property are high, long-term investors will absolutely gain from investing in India’s market. There’re expansion plans waiting to be erected; basic infrastructures such as roads, bus ways and others are in the way to improve the accessibility of the country.
The economic growth of China has never appeared so good before, and Shanghai is the epicenter of the economic expansion of china. Expats are moving out of Hong Kong’s incredibly expansive residential to come live in Shanghai. Even though the property prices of Shanghai are starting to rise and follow the path of Hong Kong’s property market, it’s comparatively cheaper. The residential sector demand is always high in Shanghai.
Affordability is one of the most striking motivations in Shanghai’s commercial real estate industry. Even though Shanghai is among the busiest capitals in the world, its property prices aren’t as high as its antecedents such as Mumbai or Hong Kong. There is no reason as to why the property prices in Shanghai will not appreciate further, so start investing in this area!
Restrictions on Foreign Property Investors
Let us first have a look at Singapore, a palpable hotspot considering its small size, attractive demographic and political stability. Foreign retail and institutional investors from all across the world as far as Canada, USA, Europe, Middle East, and neighboring countries such as Malaysia, China, and Indonesia are flocking to this state to snatch up the private properties.
The prices for leasehold condos situated in the sub-urban area can easily go for $1 million. To hold back the rising prices for property and to placate the citizens’ outcry, the Singapore government reacted fast with the following set of cooling measures:
1) Foreign investors are subjected to a 10 percent stamp duty besides the current 3% of the property price.
2) Permanent residents buying their second or more property will be subjected to an extra 3% stamp duty from the current 3%.
3) Singaporean citizens buying their third or more property will be subjected to the extra 3% stamp duty.
Real estate prices have rose so much that some analysts in the island are looking forward to see prices fall by as much as 30% by 2014. This is subjected to the economic developments arising from Europe, US and China.
Secondly, let us study Malaysia. The country is divided into 2 parts by the sea. Peninsular Malaysia lies south of Thailand and is bordered by the Strait of Malacca on the west. Across the South China Sea are Malaysia’s eastern states of Sabah and Sarawak.
Malaysia is a comparatively big country and sparsely populated. The highest property investment concentration is in the capital. There are no restrictions on foreigners owing land properties, contrary to Singapore, although foreign investors are subjected to the following regulations.
1) Least property is 500,000 Malaysian Ringgit
2) A foreign-owned levy 11,000 Malaysian Ringgit
3) Not allowed to own Malay reserved land
4) Own up to a maximum of two properties (If one aims at owning a third property, they have to submit an application for approval to the Foreign Investment Committee of the Economic Planning Unit at Department of the Prime Minister).
The Benefits behind Asian Commercial Real Estate
In the past years, Asian property market has turned out to be more and more transparent to the overseas investors. The idea of opening up to the global market has definitely improved interest to foreign investors. As a result, there was an actual boom in the property market in 2007.
Even though each Asian country has diverse market trends traits, every Asian country seizes appealing promise, that is, steady economic growth, a huge amount of land, and certainly countless resources and opportunities waiting to be grabbed. Those people who are smart enough to take hold of these opportunities have long before benefited from these lands. Since 1960, the largest and most heavily populated continent has turned out to be richer faster than any other part of the world.
Sustained and swift economic growth renders Asia is possibly the most exciting region to buy property. Over the last 3 decades, outstanding economic growth has occurred in East Asia. According to a report by Harvard, the share in world GDP for Asia could grow to more than half of the world’s economy in the next three years.
In Asia, buying a big land isn’t as expensive as other parts particularly in countries such as Vietnam or Indonesia. Thus, you don’t need to be a multimillionaire investor to be capable of acquiring a piece of Asia. In Indonesia it’s possible to own a reasonably large piece of land for as low as $60,000 USD. It’s quite a bargain compared to other states who exhibit mind-whooping property prices.
Asia is the most overpopulated regions of the world. Occupying 30% of the Earth’s surface area, Asia houses over 3.879 billion people, and that is more than 60% of the world’s present population. Increase in population definitely results into an increase in housing, increase in retail and commercial infrastructure and increase in public amenities. All this means high demand in the property sector.
Asia’s commercial real estate isn’t shaken by the current European debt crisis or the current America’s financial crisis. Why is that so? Because 90 percent of the Asian property is financed by local investors, and that’s why the capital flow has been increasing steadily from time to time.
In a Nutshell: Why consider investing in Asia?
- Asia is beginning to open doors to foreign investors: Improved transparency.
- Asia’s thick population = Increase in homes, malls, hotels, and other real estate properties = increased demand in the property
- Asia isn’t entirely affected by US’s financial crisis.
- Asia’s steady growth supports healthy commercial real estate market.
- Asia’ land is relatively cheaper in comparison with other regions.
Don’t drag your feet anymore, invest in Asian commercial real estate for long-term. Have a look at how the region grows from a fishing market to a multimillion dollar industry for the last decades. Asia is still growing, but at such fast speed that surprises economists from all across the world. So jump in and join the Asia’s investment club!
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