Asia

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There’s good value in Asian residential property – though the world’s best value lies outside the region

Buy for yields – but avoid countries with high transaction costs
There’s good value for property investors in Asia. But investors need to watch out for high round-trip costs (characteristic of 3rd world housing markets) – taxes, registry fees, realtor costs. High round-trip transaction costs mean that the most obvious markets on a yield basis (Indonesia, the Philippines) are not really so attractive.

We rule out Hong Kong, Singapore as destinations for rational buy-to-let investors because of their very low yields. We rule out China because non-resident foreigners are shut out. We rule out Vietnam despite good yields, because individual foreign buyers cannot sub-let (they can buy both through a lease and through an offshore company). However for domestically-resident buyers, Vietnam is likely to be attractive, once the credit crunch is over. Yields are high, long-term economic growth is strong, and taxes are reasonable.

The region’s most attractive market for yield is Mongolia, which still also has low costs, and low taxes (but you’d never want to live there).

For those who like to buy where they’d spend time, Thailand and Malaysia are reasonably attractive, with high yields and low round-trip costs.

Cambodia is worth considering. It has long-term growth, but lowish yields, and you must add costs for company formation and administration (not included in our table).

"Screaming buys" are rare in Asia
India, Vietnam, Cambodia, Sri Lanka, and Mongolia are all up over the past few years (but no price indices).

To justify buying Asian property for one’s personal portfolio, both high yields and low transaction costs are essential, in our view. This is because of the significant problems:

• Land cannot be bought in most Asian countries, so that usually means condominiums.


• Asia has few building regulations. The next building boom will bring a rush of (newer) condos onto the market.

2007 saw significant residential property price appreciation in some parts of Asia:

Four countries strike us as still attractive in Asia – Thailand, Malaysia, Mongolia, and possibly Cambodia.

Mongolia – high yields, strong GDP growth, but very ugly capital
In Mongolia growth is high, taxes are low, and transaction costs are very low. Supply of new quality apartments remains very limited, even though Ulan Bator is experiencing significant construction activity (Mongolians have little experience building to high a standard). This is an investment market, buying apartments to rent to foreign executives.

Thailand – good value, low costs
Thailand was neglected by buyers during the 2005-6 boom. We reckon there are yields of around 8%, low round trip costs, and reasonable taxes. Thais prefer to live in new houses, so buyers must target the expatriate rental market.

Malaysia – good yields
Malaysia offers good yields (9%), low round trip costs, low capital gains taxes, though significant rental income taxes. The possible danger is looming oversupply.

Cambodia – for the long term
Cambodia has experienced tremendous price appreciation. It is the easiest country in Indochina to buy property in, and control can be established over land despite constitutional prohibitions on foreign ownership. Yields are low, but the real bet is on the long-term growth.