Chilling effect in the region

Governments are acting to prevent runaway real estate prices, writes Peta Tomlinson

PUBLISHED : Wednesday, 11 September, 2013, 12:00am
UPDATED : Wednesday, 11 September, 2013, 4:58am

Buying an overseas investment property is not as straightforward as it once was. Foreign money may be the lifeblood of any economy, but when it fuels runaway property markets, something needs to be done to stem the flow.

Hong Kong and Singapore have done just that - imposing an extra tax burden on foreigners buying residential property and, in both cases, investor ardour has cooled as a result. Malaysia may be about to follow suit.

A new report by Knight Frank says restrictions for international buyers looking for property in the Asia-Pacific are unlikely to be lifted in the near future. In Indonesia, Vietnam and India, foreigners are not allowed to own land at all. But look just a bit further afield, to South Korea, Japan and New Zealand, and non-nationals should face "no significant barriers to home ownership" right now.

Nicholas Holt, Knight Frank's Asia-Pacific head of research, says the increasing volume of cross-border property deals have caused governments to act. Especially given the global stock market uncertainty and, in the case of Chinese, curbs on multiple home ownership in their own country, prime residential markets in first tier and emerging cities have looked increasingly attractive.

Cooling measures in Hong Kong and Singapore, where house prices rose 28 per cent and 23.8 per cent, respectively, in the year to the first quarter of this year, (and by 19.1 per cent and 4.5 per cent respectively to the second quarter) mean foreign investors are now hit with a 15 per cent additional Buyer's Stamp Duty. While this has had an impact, Knight Frank expects there will be a further drop in activity in the primary and secondary markets over the next few months. Additional taxes for foreign buyers are also proposed in the Johor state of Malaysia, where prices are up 6 per cent over the year.

In Australia, foreigners do not get carte blanche, but they can buy land, new dwellings and off-the-plan properties, which are Foreign Investment Review Board-approved.

Holt understands the dilemma governments face. "Land, especially in a number of countries, is seen as sacred and not something that can be given over to foreign hands. Other countries try to strike a balance between giving domestic citizens an affordable stake in their country, while offering the possibility of property ownership to attract foreign talent who make an economic contribution to the country."

There's also a view that a tide of foreign money skews values, putting home ownership beyond the reach of locals. Ahead of last Saturday's federal election in Australia, then-Agriculture Minister Joel Fitzgibbon, under scrutiny on Labor's foreign ownership rules, explained the conundrum: "We don't want to send foreign investment running, nor do we want Australians concerned about levels of foreign investment."

From a buyer's perspective, demand will always be there. As Knight Frank notes in its report, wealth is on the rise, and given a lack of alternative options, investors will continue to pour significant portions of their money into property.

This trend is also seen by the Asia-Pacific Real Estate Association (APREA). While its focus is more on the public side (institutional, rather than private investors), CEO Peter Mitchell says that interest remains strong, despite some contraction risk.

"On investors' radar are more mature markets like Japan and Australia, but there does remain significant appetite for emerging markets, led by China," Mitchell says. APREA is at the forefront of efforts to establish a reit market in India, but it is still not clear how foreign investors would be able to participate.

Don't expect governments to change tack any time soon. Holt says: "While there remain opportunities across Asia-Pacific for foreign buyers, the politically sensitive nature of foreign ownership is likely to mitigate the chances of any wholesale changes in the near future."

Mitchell concurs, saying he "doesn't expect much change" of policy in countries which do not allow foreign ownership of property.

However, Tim Murphy, CEO of IP Global, says there might be new opportunities in areas other than direct ownership. This could be driven by countries which "would love the money, but don't necessarily want to give up the land".

"In China and Vietnam - communist countries which are trying to protect their domestic market, we are unlikely to see foreigners being allowed to buy freehold in the short term, but there may be some loosening up of long leasehold," he says, especially in Vietnam, which Murphy describes as a very entrepreneurial, forward-thinking market.

Asian markets are "hugely attractive" to investors and, with a long leasehold of, say, 99 years, "at least you know it's yours", Murphy says.

IP Global's advice to people considering any emerging market is to "make sure it's safe". "We are huge advocates of Jakarta as a property investment market, but nervous about buying there as an asset. You can't own it, and you can't mortgage it," Murphy says.

Foreign property investment would boost Indonesia's economy, and Murphy believes it is only a matter of time before changes happen there.



Thailand Up to 49 per cent of a single freehold development

Cambodia Apartments and condominiums above the ground floor

Hong Kong No restriction - but must pay 15 per cent additional stamp duty

Singapore Some restrictions - plus 15 per cent additional stamp duty

Malaysia Units priced above 500,000 ringgit (HK$1.18 million)

Australia Land, new or off-the-plan dwellings which are Foreign Investment Review Board-approved

South Korea No restrictions

Japan No restrictions

New Zealand No restrictions

Source: Knight Frank research