Southeast Asia attracts foreign homebuyers

Countries like Thailand and Malaysia are waking up to the benefits that second-home buyers can bring to the economy.
A few countries in the region are starting to realise that mass tourism isnÆt the only way to benefit from their beautiful beaches and mountain hideaways. After two decades of aggressive tourism campaigns, Asian countries are now competing with each other in the second-home market.

Foreign tourists are a blessing û they bring plenty of cash and generate jobs, which can be a huge contributor to the economies of tourist-friendly nations such as Thailand and Malaysia. But tourists are a fickle bunch too. Thousands cancelled holidays to Phuket when bird flu killed a few elderly people in Hong Kong and the aftershock of terrorist attacks in Bali were felt across the region.

Tourism also brings lopsided development û idyllic beachfronts are converted into first-world facsimiles without much social benefit to the wider community û while attracting expatriates or property-owning repeat visitors offers a chance to move away from the seasonal and volatile income of tourism toward something more stable and, perhaps, of greater social value to local communities.

ôFor 30 years everyone focused on tourists,ö says James Pitchon, of CB Richard Ellis in Thailand. ôYou had Amazing Thailand, Malaysia Truly Asia, Hong Kong Disney and all that, which was purely focused on developing tourism. That is changing now. People are seeing that attracting foreign homebuyers is something very positive.ö

The economic benefit is obvious. People who own a property spend a lot more money each year than a couple relaxing by the beach for a week, and they return year after year. The money they spend is more likely to end up in local pockets, supporting and sustaining the local economy rather than transplanting it. Long-term visitors are also more likely to learn the language and to be sensitive to the local culture û as well as being committed to preserving the idyll that they have invested in.

There are two categories of people who make up this anti-tourist universe: the rich middle class types who want a holiday home they can visit a couple of times a year and the retirees who either want to winter by the beach or simply want to up sticks and live out their days in sunnier climes. Both groups offer more reliable income than the tourist crowd and some countries are now wising up to this.

The international schools and first rate hospitals that follow also provide a better range of employment opportunities than the dive schools and go-go bars that follow package tourists, and retired professionals tired of lounging by the pool often volunteer their skills to locals through part-time teaching posts.

Indeed, the greying populations of Europe and the US may be bad news for their home economies but they are a positive boon for countries that can offer mild winters, a high standard of living and cheap healthcare û as well as a pain-free way of taking advantage.

In this regard, Malaysia is leading the way. It first started to offer breaks for retirees under a scheme called Silver Hair, but recently launched a much broader programme under the Malaysia My Second Home brand, offering incentives for people to buy a home in Malaysia.

ôKenji and Akiko,ö model silver-hairs that are featured on the Malaysia My Second Home website, are so fascinated with the Malay culture that they are taking dance lessons and wearing batik "just to get the feel of the culture."

The perks apply equally to genuine retirees and to people who just want to buy a second home in Malaysia. After registering in the scheme, successful applicants get a five-year visa that allows them to come and go as they please, without any minimum annual residence requirement. The scheme entitles you to buy one or two properties with a total value of at least M$250,000 ($74,000), or M$350,000 in certain parts of Sarawak. Unlike Thailand, you donÆt have to pay cash û you can get a mortgage for up to 60% of the value from any commercial bank operating in the country, including international outfits such as HSBC.

You can import a car or buy one locally without paying sales tax or import or excise duty, which can amount to a saving of thousands of dollars if you insist on a Range Rover or X5. You can ship in furniture and other household effects without the need to pay any duty, you can hire a domestic helper and bring your kids along as dependents, and you donÆt pay tax on any income remitted into the country.

All in all, itÆs a pretty sweet package and to date there are 8,000 expats living in Malaysia under the scheme. After the five years you can either apply for permanent residency or simply opt for automatic renewal of the visa.

Amazing Thailand?
Thailand is AsiaÆs favourite destination for holidaymakers, so itÆs no surprise that it is also the most popular place for holiday and retirement homes, primarily in the countryÆs luxury resort areas: Phuket, the Andaman Coast and Koh Samui, as well as the traditional resort towns within easy reach of Bangkok: Pattaya, Hua Hin and Cha Am.

The success is despite of, rather than because of, the Thai authorities. Proposals mooted by the generals who have been running the country since the military coup in September 2006 have made it much more confusing for foreigners to buy property in Thailand, and it wasnÆt very straightforward to begin with.

Before the coup Thai officials had adopted a loose interpretation of rules preventing foreigners from owning land. The letter of the law stated that, in effect, foreigners could only own a maximum of 49% of the land area of any property, which could easily be circumvented by setting up a company in which the foreigner would hold 39% (the maximum you could typically get away with without provoking an investigation by the Central Land Bureau), while the rest would be held through Thai nominees. The company would be structured so that the foreign party was the sole director and had sole control of the company.

But since the generals took charge this cosy racket has come under scrutiny.

ôItÆs guesswork at the moment,ö says one lawyer in Thailand. ôWhat weÆve got right now is a situation where at least two different sets of rules overlap and contradict each other, and itÆs anyoneÆs guess which will eventually prevail.ö

Under the Land Code a company is considered Thai if 51% of its shares are owned by Thai citizens. But if the generals get their way a completely different standard could take effect and, at least for the moment, is already being followed in some respects. Nominees are no longer used to satisfy the shareholding requirements and in the future the board of directors may have to be majority Thai and differential classes of shares may no longer be recognised.

ôIn many ways weÆre back to where we started in Thailand û weÆve got 30+30+30-year leases,ö says Pitchon, referring to an arrangement where the property is bought by a Thai and leased back for 30 years, with an option to renew. ôAnd itÆs still a cash market; thereÆs no ability to borrow money.ö

But Pitchon says there is still strong demand in Thailand from foreign buyers despite all the restrictions. It is easy to understand the attraction. ôFor many buyers Thailand is a lifestyle purchase, not purely a financial investment,ö he says.

In that sense, Thailand offers AsiaÆs happiest compromise between picture-postcard holiday destinations and modern comforts: reliable telephone and internet connections, well-stocked supermarkets brimming with familiar foods, decent hospitals and so on. Joe Cole, a Premiership footballer for Chelsea, recently bought a condo overlooking the Black Mountain golf course in Hua Hin.

The condo market isnÆt affected by foreign ownership rules, at least on an individual basis û so long as the property isnÆt bigger than 49% of the buildingÆs total floor space there is no ownership issue û and this is likely to be the main driver of growth in the second-home market in Thailand at least until a more sensible regime is adopted.

In places such as Phuket and Koh Samui one of the latest trends is a combination of second-home and investment property developed in tandem with one of the five-star hotel operators û where the hotelier manages the property in return for a share of the income. The Shangri-La in Phuket is currently building the first such project and the W Hotel in Koh Samui is in the planning stage of a similar scheme.

Even outside the condo market foreign interest is still high. Buyers are accepting the 30-year lease, but deals are migrating towards the bigger and more reputable developers.

ThailandÆs authorities may not be helping much, but it is following a path similar to Spain regardless, where the market has already moved from package holidays to property ownership. There are somewhere between two and four million foreigners who own properties in Spain.

To be fair, the trend hasnÆt completely escaped the Thai authorities. In mid-2006 it introduced its own retirement visa, but the scheme isnÆt much of an inducement. One-year visas are begrudgingly handed out to people over 50 who deposit Bt800,000 ($25,000) in a Thai bank or can demonstrate an income of at least Bt65,000 a month.

Beyond Thailand
Still, Malaysia is not alone in recognising the potential of the second-home market. Indonesia is revisiting its rules and Vietnam has already paved the way for more foreign ownership with 50-year leases and is considering even longer ones. So far most of the interest s concentrated in the resort areas of Danang, Hoi An and Hue, but even the condo market in Saigon is buoyant, according to CB Richard Ellis. Cambodia could be the next market to enter the field.

Even Singapore, somewhat surprisingly, has entered the second-home market with its Sentosa Cove development, where foreigners who buy properties are eligible for visas.

Thailand remains the market leader despite itself, but to really capitalise on its advantage the new government will need to introduce 99-year leases and consider easing the rules on foreigners buying residential property. If not, there are plenty of competitors waiting to lure would be homebuyers.

This story first appeared in the Private Capital supplement that was published with the November issue of FinanceAsia magazine.
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