A place in the sun
Second homes in exotic locations, especially in Asia, are becoming more popular and yields can be surprisingly high, writes Chris Davis
LIFE'S A BEACH for the wealthy - or more correctly, a private beach with a luxury villa. Certainly, that's the dream of the millions who aspire to the trappings of wealth: hectares of private space and all the time in the world to enjoy it.
But luxury properties serve a purpose other than the pursuit of an opulent lifestyle. They are one of the safest and most rewarding of investments, often appreciating in value even when the broader market is sluggish.
And as up-and-coming areas tap into the worldwide boom in second-home ownership and investment opportunities, developers are catering for new buyers of luxury homes by offering secure, managed communities in spectacular locations with many on-site amenities.
Andy Street, a partner with Tawan Properties, says high-end properties are typically in exclusive areas and in limited supply. 'High-end property never goes out of fashion, so often it is a safe investment. Buying now may seem expensive, but as prime sea view and beach front locations run dry, the value of luxury properties is certain to rise,' he says.
Tawan Properties specialises in real estate in Phuket that appeals to investors seeking a combination of personal lifestyle usage and high rental or capital appreciation. Often the investments are held for a medium term of about five years where market value increases can significantly exceed the returns on other asset classes.
Mr Street says high-end properties are usually more immune to market fluctuations than other types of property investment in Phuket. This is because they are in short supply, whether already built or off-plan, and because demand from corporate executives, wealthy retirees and investors with operations and business in Asia is almost unlimited.
Mr Street says the emergence of private and bank-led overseas investment funds buying into high-end Phuket developments for investment purposes has trebled in the past 12 months.
'Our owner clients have experienced market value rises of 40 per cent in just two years, more when you take into account the rental income and foreign currency gains. High-end property transactions completed five years ago have tripled in value and there are examples on the island of properties released only 12 months ago being resold with a 100 per cent gain,' he says.
David Simister, chairman of CB Richard Ellis in Thailand, says luxury properties in sought-after locations are in limited supply which consequently drives up their value.
Mr Simister says the Royal Phuket Marina scheme in Phuket is one of the last chances for investors to secure a property in a prime location overlooking the sea. Phase one, which comprises 66 condominiums, has accrued 100 per cent capital growth, according to the developer. He says it is the capital growth and medium- to long-term returns if the property is leased to other users that make the luxury property market a worthwhile asset class.
'Investing in the Phuket real estate market has proved to be one of the best investments many investors have ever made. Those who have bought property in properly developed and well managed projects have seen their capital investment grow by between 50 and 100 per cent,' he says.
Vietnam, with its rising economic status, is also being touted by a growing number of property developers as the latest luxury property hot spot in Asia.
Rick Mayo-Smith, chief executive of IndoChina Land, which manages a fund that acquires and develops properties in Vietnam, says buying into a new urbanisation, or an area where new transport links give access to more remote locations, can ensure rapid growth in resale value. However, the investor may have to wait several years for such gains to come to fruition.
Mr Mayo-Smith says an example of this is Vietnam's Central Coast, which has several prestige brand operators entering the market, including General Hotel Management, Banyan Tree, Four Seasons, Raffles and Hyatt. He says the creation of this critical mass of luxury properties can solidify the high-end image of the area and enhance the value of luxury properties associated with the brands.
'Vietnam is a relatively new destination for many investors but places such as China Beach and The Nam Hai are gaining worldwide exposure and gaining in popularity. We are seeing growing numbers of investors realising that Danang-Hoi An will be one of Asia's next sought-after leisure destinations for high-end tourism, capital growth and preferred location,' Mr Mayo-Smith says.
Peter Ryder, chief executive of Indochina Capital Corporation, says Nam Hai villa investors have the option to include their property in the resort rental pool and generate an annual return when they are not in residence. Returns are estimated to be about 5 per cent, but capital appreciation may increase significantly when direct flights from Hong Kong begin next year.
Mattias Lamotte, an investor in the Nam Hai development, says equivalent beachfront properties in Bali or Thailand are more expensive than in Vietnam.
'Part of my Nam Hai investment bet was that the infrastructure and flight situation will improve significantly over the next three to five years and that the price gap for equivalent properties in Vietnam and elsewhere will narrow,' Mr Lamotte says. The Nam Hai is priced at US$3,000 per square metre while average property prices in other popular locations such as Amanpuri in Phuket, Thailand, are US$12,000 per square metre, The Setai in Miami, Florida (US$20,000 per square metre) and Amanyara in the Turks and Caicos Islands, in the Caribbean (US$12,500 per square metre).
'I think it's a long-term proposition. Buying a property that is managed by a five-star hotel group in Vietnam will probably not appreciate as much as buying into a property fund which buys land at 'Vietnamese prices', as you need to pay a large premium for the five-star hotel treatment and management expertise,' Mr Lamotte says.
In Hong Kong, Eva Yip, a property research analyst with Sun Hung Kai Financial, says demand for deluxe properties is on an upward spiral.
'Unlike the property boom in the 1990s, when there was widespread speculation, this time the luxury property market seems far more sustainable. We are even seeing developers packaging their property developments as luxury projects,' she says.
In the first four months of the year, nearly 90 per cent of the HK$108 billion spent on domestic transactions was in the secondary deluxe market.
Ms Yip says there is continuing demand for luxury properties on the mainland. Although the situation is far from clear, it appears that restrictions imposed on foreigners buying mainland properties are less rigid for Chinese residents from Hong Kong, Macau and Taiwan.
'Luxury properties on the mainland, whether for end-use or investment, are an attractive proposition for Hong Kong buyers because, compared with other locations, they are usually comfortable with the long-term potential of the property market and continued strengthening of the yuan,' Ms Yip says. Before purchasing a luxury property for investment purposes, investors should check rental yields in the vicinity, infrastructure plans and the impact of any future property developments.
In addition to increasing demand for luxury properties either as a lifestyle choice or investment, real estate investment trusts (reits) and property funds continue to attract investor attention.
The Asian reit market took significant strides towards the end of last year after a brief consolidation amid the region's stock market slide in May and June. Fuelled by buoyant equity markets and robust economies, Asia's reit markets expanded briskly. A total of 27 new reits and property trust funds were floated last year, pushing the total market capitalisation to US$63 billion, compared with an estimated US$38 billion at the end of 2005.
Samir Raslan, managing director and head of investments, Citigroup Global Wealth Management Asia-Pacific and Middle East, says a growing number of high-net-worth clients looking for alternative investment opportunities are co-investing with their private banks in private equity projects. These can include anything from luxury property projects to the management of commercial properties.
'Co-investment between our clients and us is something that a growing number of our clients expect and is on the rise, which we welcome. This partnership arrangement can be beneficial to our clients, particularly in areas such as large-scale Asian property development where Citi has had a long presence and built up a high level of expertise.'
Carolyn Russell, head of client service and consulting at ipac investment services, says the securitisation or packaging of property in financial instruments has created new investment opportunities and is fuelling the growth of this asset class. Last year, legislation was introduced in Britain which will enable a projected US$100 billion of listed property supply to enter the market in the next five years. Ms Russell says by investing in managed property funds, investors have discovered a flexible way to get in on the ground floor of the global property phenomenon, without the traditional barriers to entry.
She says that the key distinction between property funds and direct investment in property is liquidity in the ability to buy and sell and the ability to adopt a diversified approach. This may be in traditional sectors such as office buildings, or newer sectors such as bulk storage facilities.