Here is my take on the Asia Pacific real estate market and why Malaysia is still the place to invest.
Before I go into the details of the market, I want to identify the segment of the market which I believe holds the key to any major real estate boom; the middle and upper middle class. For this article. I will specifically look at the middle classes of Asia Pacific.
According to a report by Ernst and Young released on 25 April 2013 in London
“By 2030, two-thirds of the global middle class will be residents of the Asia-Pacific region, while Europe’s share of this population will have dropped by 14%” – Ernst & Young
From studying the different markets of the world that went from sleepy to scintillating and boring to boom, we can see a certain pattern emerging. It always starts with strong government initiatives for economic transformation and growth that motivate and trigger an influx of savvy investors both big and small to develop various fundamental industries like construction, transportation, utilities, education, health care, corporate services, logistics, recreation etc. which are crucial to building a successful city or region.
Real estate will also have to be developed to anticipate the population growth created by such transformation. As such It baffles me to hear people saying constantly that supply is greater than demand during the transformation period. Doesn’t it make sense to build homes and offices first and than fill them up as you go along? Any government worth its salt will ensure there are homes first before bringing the people in! That means there will always be more homes and offices than people during this phase and the disparity is greatest at the beginning. Imagine doing the opposite? Where would the people live or the businessmen do their businesses? I can imagine these people would leave as soon as they come to such cities as there are not enough housing or places to run their businesses effectively. My point is if a country is going to grow successfully, there must always be more homes and offices first. Yet In some strange ways, you will hear people saying that there is an oversupply or saying that the place is a ghost town and there are still nothing there and no one is living there! Excuse me, but it is still a construction zone and there are no bars and restaurants and anything else at the moment and supply will always exceed demand at this stage.
It is good to note that most of the savvy investors and institutional investors would have gone in early. They are the lions and alligators and elephants but like lions, alligators and elephants, the big players’ who have gone in will not cause a frenzy. The lions, alligators, and elephants eat and have their fill and will then sleep. No impact on the forest or jungle (real estate market). Eventually, the market will go into a little slumber. This slumber will persists until visible signs of change appear and more stories of people making money surfaces. This is where the middle class, the locusts (who are, at the moment, still grasshoppers) will come in and devour all in its sight.
China, Hong Kong, Singapore is not palatable for most middle and upper middle class as prices are too high and/or restrictions aplenty.
India is for Indians or NRI and has its restrictions and may not be
Emerging markets like Myanmar, Cambodia, Philipines, Thailand, Vietnam, Jakarta are emerging markets and are not for bulk of the middle & upper middle classes as they are more risk adversed and these markets do not have a mature secondary (resale) market.
Australia & New Zealand, Taiwan are slower markets and may not generate the right rate of returns for those who wants faster returns
One country, Malaysia, where many people speak English, Chinese, Indian etc and where food from India, Hong Kong, China, Singapore, Korea, Japan etc can me found. Where it’s relatively cosmopolitan and many MNC’s are moving to. Where Price WaterhouseCoopers and Ernst and Young report to be the place to set up businesses to penetrate the lucrative South East Asia market. One major reason, Profitability.
Where there are quality workforce, adequate facilities and has all the logistic support equivalent to developed cities but much lower operating costs. PWC and E&Y
The World bank reported it to have better investor protection than Australia, UK and the U.S.
It is strategically located right in the middle of Asia Pacific and a short distance to all the countries mentioned above
Yet prices of its properties are still one of the cheapest in the region.
Fact is the middle & upper middle class will finally realize that there is only a place that suits their profile. Just that they will only move when all the Economic Transformation Program are in place, the people and industries are in place and then the middle class who waited will see all these happening and then it will boom.
It is like Singapore in 2005 period where we were in the transformation transition. The middle class stayed away from District 1,2 and 4 in Singapore and avoided properties like The Sail & Icon until they finally saw the Marina Bay Area truly transformed with the Casino, MBS, Flyer, Esplanade, F1 happening and heard people started making money. By then, the properties which could have turned many middle class into multi-millionaires became out of reach of them. Pity.
In Malaysia, All the Savvy investor and institutional investors have gone in. They are the lions and tigers and elephants but like them, the big players’ who have gone in will not cause a frenzy. The lions, tigers, and elephants eat and have their fill and will then sleep. No impact on the forest or jungle (real estate market). It is the middle class, the locusts (who are now still grasshoppers) that will come in and devour all in its sight.
In short, the middle class will consider these:
- Investor protection
- Increase in population thru transformation
- A mature local real estate market
- Lower price and entry level
Singapore had all of these but the one country most similar to Singapore in Culture, language, and social and economic make up. Which country in Asia Pacific is most similar to Singapore in these aspects?
Remember, Singapore boomed and attracted the expatriates and grew our population because of adding one element to work and live, play. Which country is working on the same industries and ingredients that transformed Singapore in the last 20 years?
Your guess is as good as mine. We are just waiting for the grasshoppers from China, Korea, India, Hong Kong, Indonesia, Singapore and even Malaysians themselves to become locusts.
By Colin TanColinTan Training & Consultancy
ColinTan Training & Consultancy