People sometimes want me to approve of their global investment plan. “Is buying property in (country name) a good investment?” they’ll ask.
I always happily answer this question. However, I answer it relative to other investments they could make. After all, why invest in something if you can make better returns elsewhere?
Could you make money from buying real estate in Manhattan? Probably. Many people have made and continue to make decent returns by doing so.
But “decent” isn’t good enough for me. I don’t think something qualifies as a “good investment” just because it won’t put you in the red. Why not buy property in a faster-growing city with 9% rental yields instead of 5%?
In that spirit, here’s a list of the three best places to buy real estate in Asia.
Property in Malaysia is a good investment simply because of low prices. These are helped even further by an unusually weak currency.
Recently, the Malaysian ringgit has been one of Asia’s worst performing currencies. This hasn’t always been the case. But the ringgit is now at a 20-year low and has few places left to go besides upwards.
So anyone bringing foreign currency into Malaysia should benefit from favorable exchange rates. Returns and capital appreciation will also be compounded once the ringgit rises.
Buying a condo unit in the nation’s capital of Kuala Lumpur will cost you less than in Bangkok – or even Saigon. This is despite Malaysia being one of the most developed, modern countries in Southeast Asia.
Some pieces of prime real estate in Kuala Lumpur’s city center cost around US$3,000 per square meter (~$30 per square foot). This is around half the price of similar properties in Bangkok, for example.
I don’t recommend Malaysia because of strong market fundamentals or high cash flow. In fact, vacancy rates and supply are both at dangerous levels. The country also has some of the lowest rental yields in the region.
But Malaysia also has strong population growth and urbanization rates, along with a rising middle class. Prices will rise once fresh demand and lack of space catches up with reality.
#2: The Philippines
High-rise condominiums in the nation’s capital of Manila remain overvalued. These are often marketed toward foreigners and their supply is at a dangerous level.
But there’s much more opportunity for landed properties, such as villas and townhomes, in the country. Values are still reasonable in some cities. However, buying real estate in the Philippines is a good idea because of its future potential – not low prices in the present.
The Philippines is one of the densest countries in the region. Over 100 million people live on the archipelago. Combine this with rapid population increase and the highest economic growth rate in Southeast Asia.
What’s the result? Far more people will compete for increasingly less land over the long-term.
It’s not quite that simple. Foreigners in the Philippines can own houses themselves, but are barred from buying the land it sits on.
There’s a few ways around this problem. Barriers to entry are a good thing if you’re willing to break through them – they help keep others out.
The most common route is to form a Philippine company. Businesses can own land if foreign ownership is below a 40% threshold. There’s methods of structuring the company to ensure you nonetheless keep control of the firm.
Other than that, land can be leased for up to a 50 year period. This is extendable for another 20 years.
Cambodia is Southeast Asia’s second-fastest growing economy. Its modest population of 15 million will increase by 30% before 2030. Furthermore, a young workforce will help drive its productivity and growth far into the future.
But property in Cambodia isn’t a good investment just because of strong economic growth or favorable demographics. Places like the Philippines also have both of these.
Investing in Cambodia is great because on top of these things, it’s also a frontier market.
Few people have exposure to frontier markets. This is mostly because it’s hard to invest in them, often requiring travel and effort. Those who manage get a rare combination of growth, diversification, and protection.
Why do frontier markets help diversification? Their growth is less dependent on other economies. They’re not hit as hard by financial crises.
Cambodia hasn’t had a recession for over 20 years. It skipped the Asian Financial Crisis of the 1990s, missed the tech-bubble of the early 2000s, and outgrew the Global Recession of 2008. This was all while averaging growth of over 7% per year.
Our world is now interconnected. McDonald’s, Dunkin Donuts, and similar brands can be found almost anywhere. Malaysia and the Philippines aren’t exceptions.
As such, most countries need continued foreign investment from these businesses. The entire world gets sick when the US or China sneezes. But frontier markets don’t always follow this rule.
There’s no McDonald’s or IKEA in Cambodia. Therefore, it’s not missing out on investment when the global economy turns sour and these companies stop expansion.
Also, Cambodia also uses the US Dollar as a currency. We aren’t big fans of the dollar here at InvestAsian. But it’s far more stable than other currencies in the region such as the Indonesian Rupiah or Vietnamese Dong.