Identifying opportunities in ASEAN real estate
By: Alexander Chipman-Koty
16 September 2016
With the establishment of the ASEAN Economic Community at the end of
2015, many ASEAN members have witnessed increasing harmonization of
economic policies. The removal of trade barriers and increased openness
throughout ASEAN is partly a result of the implementation of
pre-arranged regional integration and standardization measures, but is
also caused by growing competition between ASEAN members themselves to
attract foreign investment.
Real estate is one area which has been the target of liberalization
efforts in many ASEAN member states in recent years, and has
subsequently witnessed considerable growth.
Between 2005 and 2014, investments reached US$28.19 billion, largely
coming from investors outside the region. Investment in the sector is
poised to continue growing at impressive rates in the coming years as
restrictions on foreign investors are eased and the region’s emergent
middle class exercises increased spending power.
Emerging markets including Vietnam, Indonesia, and Cambodia have been
conducting reforms to make foreign involvement in their real estate
markets more accessible, presenting a wide range of opportunities.
However, considerable obstacles remain when investing in ASEAN’s real
estate market. Despite an improving investment landscape, many
countries continue to have highly restricted land ownership laws,
including short land tenures and restrictions on the ability to
re-lease and renew land.
As much of the region grapples with high urbanization rates and
inadequate infrastructure, governments must balance the desire to
attract foreign capital with providing their citizens with affordable
On July 1, 2015, Vietnam’s Housing Law and Law of Real Estate Business
came into effect, greatly liberalizing foreigners’ access to purchasing
real estate and making Vietnam one of the most open countries in
Southeast Asia to overseas real estate investment.
Together, the new laws allow foreign investors to own, sell, and
transfer properties. While land is owned by the Vietnamese government,
foreigners can hold titles on residential properties for up to 50
years, with the opportunity for a 50 year extension. Further,
individuals married to Vietnamese nationals can own for a longer term.
Meanwhile, foreign companies, branches, and representative offices
licensed to do business in Vietnam may purchase and sell properties for
the length of the period declared on their investment or operation
certificate, and developers are permitted to lease houses and buildings.
In an effort to protect consumers, developers intending to sell or
lease units before construction is finished must receive a guarantee
from an authorized bank. Foreign buyers may purchase property that is
part of a development, such as an apartment, condominium, or townhouse,
but not standalone units.
Previously, foreign investors could only rent property for up to a year
at a time unless receiving a land use right when operating under a
joint venture with a Vietnamese partner, and individuals faced a
multitude of restrictions.
The new legislation makes Vietnam an attractive location for foreign
investment in real estate, as is evidenced by a study by the Urban Land
Institute and PwC that rated Ho Chi Minh City as the fifth best real
estate investment prospect in the Asia-Pacific region, trailing only
Tokyo, Sydney, Melbourne, and Osaka.
In 2014, FDI inflows into real estate was three times 2013 levels and
construction five times 2013 levels, making them the second and third
largest recipients by sector, behind only manufacturing.
Together, real estate and construction captured US$3.6 billion in FDI
during 2014, representing 18 percent of the country’s total. Leading
extra-ASEAN investors in 2014 included South Korea, Hong Kong, Japan,
while the U.S., EU, and Canada all saw sizable increases in real estate
investments in Vietnam.
Indonesia is an alluring market for foreign real estate investment due
to its large and youthful population, rapid urbanization rates, and
emerging middle class.
Within the next 40 years, Indonesia’s middle class of approximately
45-50 million people is projected to nearly double. The country’s
massive population of over 255 million is disproportionately young,
with half under the age of 30.
The country’s demographics suggest that there will be a huge influx of
young first-time buyers entering the property market for the
foreseeable future, many of whom will be part of a large middle class.
Over half of Indonesia’s population already reside in urban areas, and
the United Nations projects urbanization to reach 75 percent by 2050.
Between 2011 and 2013, average prices of residential property increased
by about 30 percent annually, and Indonesian real estate stocks also
performed impressively during that time period.
For individuals, foreign ownership in lower-end properties is highly
restricted, though the high-end luxury market has been liberalized in
recent years. A decision in 2015 allowed foreigners to own “luxurious
apartments”, and a later decision permitted foreigners working or
investing in Indonesia to own landed houses.
Foreigners can purchase a landed house for an initial period of 30
years, with the possibility to extend for 20 years and then an
additional 30, for a total length of 80 years. Foreigners can only hold
“Right to Use” (Hak Pakai) titles, and cannot hold “Right of Ownership”
or title to units categorized as “modest” or “very modest”.
The minimum price for a property to be eligible to be purchased by a
foreigner depends on the region, ranging from IDR 5 billion for an
apartment in Jakarta to IDR 750 million for an apartment in a less
Although foreign individuals face considerable restrictions, there are
no restrictions on fully owned foreign entities involved in property
development and investment from owning property, and can hold “Right to
Although foreign invested companies are not restricted, the lucrative
lower to lower-middle range of the market has a significant government
Under the “One Million Houses” initiative, state-owned developer
Perumnas received IDR 1 trillion from the government to meet the goal
of constructing ten million new homes between 2015 and 2020.
Though it lacks the size and industrial capacity of Vietnam and
Indonesia, Cambodia is a frontier market which has experienced an
increase in foreign participation in real estate in recent years.
Though foreigners cannot own land in Cambodia, 2010’s Foreign Ownership
Property Law opened foreign investment in condominiums and
strata-titled units. Foreigners are restricted to the upper floors of
buildings, limited by certain locations, and cannot comprise over 70
percent of a given building.
According to the consultancy CBRE, the number of condo units in Phnom
Penh has risen from just 178 in 2009 to 2,095 in 2014, and projects an
additional 9,000 between 2015 and 2018. Property Guru notes that
investors have been registering rental returns between five and seven
percent per year and annual capital growth of between five and 7.5
However, the rapid growth in units may outpace local demand, as most
are unable to meet the costs. Further, there are suspicions that
Cambodia’s real estate sector is being used for money laundering.
Chinese developers have been aggressive in the region, and some see
Cambodia as a vehicle for Chinese entities to get their money out of
China and convert their wealth to US dollars. Despite these concerns,
Cambodia has potential to grow thanks to increasing regional
integration and consistently strong GDP growth figures.
The real estate market in ASEAN is undergoing a period of reform,
bringing both opportunities and uncertainty. Several countries have
eased their restrictions to foreign ownership in recent years, though
the breadth of property rights is often unclear.
For example, Myanmar’s draft Condominium Law allows foreigners to own
up to 40 percent of a condo building, but does not allow them to manage
them. As such, it remains unclear whether owners will be allowed to
rent out their properties. Despite liberalization efforts, foreigners
still face considerable restrictions throughout the region, and
political instability in countries such as Thailand lead to additional
Even developed markets like Singapore pose questions. Although the city
state is an alluring locale for new office projects as it emerges as a
headquarters for companies operating in ASEAN, concerns over
affordability and foreign influence have led to restrictive measures
controlling foreign participation. Nevertheless, ASEAN is a dynamic and
rapidly changing real estate market trending towards liberalization,
presenting intriguing opportunities both in the short and long term.
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