The influx of Chinese real estate investment globally took many by surprise. In 2016 alone, buyers from China accounted for USD 101.4 billion in international property purchases, according to Juwai.com, the largest mainland international property website. This ended a ten-year period of staggering growth for overseas real estate, and in particular luxury real estate, from Chinese investors.
Many are now wondering ‘what’s next’. Beijing implemented strict capital controls in a bid to curb overseas purchases. These have been successful in stopping large institutional investors, but have done little to prevent individuals from acquiring property abroad.
That being said, the Chinese government is likely to tighten outbound capital policy even further in the short term which has seen many in the real estate industry try to identify the next China. With significant wealth growth and an appetite for luxury property, Southeast Asia seems set to become a major player with some believing it to be the next China.
“We absolutely have high expectations that buyers from Southeast Asia will begin to venture out and start investing as we have seen buyers from China do in the past 10 years,” Stephanie Anton, president of Luxury Portfolio International®, a collection of the world’s most powerful independent luxury brokerages, explains. “The growth in sheer population numbers as the middle class in the ASEAN increases will likely spur real estate activity at all price points. At the same time, the overall increase in global awareness from citizens in the ASEAN and potential for increasing global mobility, represents a terrific opportunity for those markets that are appealing to HNWIs from Southeast Asia.”
Perhaps the only thing slowing down HNWIs in Southeast Asia from buying more luxury real estate overseas is the difficulty involved with the process. Not only do they have to navigate rules and regulations in the market they are considering buying in, but countries, such as Vietnam, also have rules in place on outbound capital that they must consider.
“We have generally found that APAC HNWIs spend a lot of time educating themselves and are very sophisticated, savvy investors. We recommend they do as much research as they can upfront, but also advise them not to be afraid to reach out to a real estate professional in the market they are considering, as early as possible, because nobody knows a local market like the local experts,” Anton states. “Bottom line, cross-border business is strong, and growing every year, but is not something that should be attempted without the assistance of a local real estate expert.”
Southeast Asia may not be the next China, but that has less to do with spending power and more to do with the type of investors involved. ASEAN real estate investors have seen the Chinese impact on luxury property markets globally and will learn from this experience to forge their own path.
Why luxury real estate and where to buy?
For HNWIs in Southeast Asia, luxury real estate represents a quality investment. As wealth has increased globally, it has brought added stability to a market that can be vulnerable to global events.
“The high end of the global real estate market, generally the top 5-10 percent in markets around the globe, has seen several solid years of growth and stability supported by a larger high-net-worth consumer base,” Anton points out.” Since 2010, there has been a 91 percent increase in households at a global level with more than USD 10 million in net worth. The direct and positive impact to the luxury real estate market has been undeniable as affluent buyers and sellers continue to enjoy and participate in the real estate market.”
Luxury real estate is a seller’s market at the moment and will likely remain that way for the years to come. It all comes down to supply and demand. With more HNWIs being created, demand for luxury properties, especially holiday homes and second residences, will grow at a faster rate than new supply.
“As we reported in our Global Luxury Real Estate Report in the fall of 2017, the global market for luxury real estate is expected to be a seller’s market with 14 percent looking to buy versus 12 percent looking to sell,” Anton says. “This trend is expected to increase over the next three years when 25 percent of global HNWIs expect to buy compared to just 17 percent looking to sell.”
And while the investment aspects of luxury real estate are important, it isn’t the only factor. Anton notes that quality of life, change of scenery, family downsizing/upsizing and education are among the other reasons Southeast Asia’s HNWI population invests in overseas real estate. The latter factor has led to an uptick in interest for luxury real estate in the USA.
“Boston has become a mecca for Asian investors looking to purchase real estate in conjunction with educating children or grandchildren. With over 35 colleges and universities, a very international population and an extremely strong real estate market, Boston is a very solid luxury real estate market these days,” Anton states.
She adds, “We are also seeing the same not only in New York City, but also in the boroughs and areas surrounding the city, like Long Island, which offer a more affordable real estate investment opportunity and great public schools as well as easy access to colleges and universities nearby. On the other coast of the US, many are also investing in areas of Los Angeles and San Francisco due to their proximity to educational opportunities.”
A word on Brexit
The impact of Brexit continues to be felt. Not only has it opened up new opportunities for luxury homes in London, but the aftermath is influencing luxury real estate markets in several other European cities.
“London, a long-time luxury real estate darling and historically a great investment if you could afford it, is, in this Brexit world, an interesting opportunity. Brexit helped to bring prices down and created a more obtainable investment opportunity for the first time in a long time,” Anton reports. “Also, as a result of Brexit, cities like Frankfurt in Germany will be interesting to watch as companies move out of the UK and take their affluent C-level executives elsewhere. The increase in demand at the high end is already being felt in Frankfurt and will undoubtedly have an impact on the market for years to come.
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