Wealthy Chinese may look with hungry eyes to the luxury property developments springing up throughout Southeast Asia, but for many, the beachside villas in Bali and condo penthouses in Kuala Lumpur remain tantalizingly out of reach.
The global financial crisis and the Shanghai stock market’s turbulent year notwithstanding, there were still 415,000 millionaires in China at last count, and the number is increasing by more than 20% each year. It stands to reason that those with money to burn would look to purchase property in the region, especially when potential returns on a wise investment in Malaysia or Indonesia can reach up to 10%.
Yet initial inquiries to leading real estate developers reveal a marked lack of activity.
"We haven’t sold a single unit to a Chinese national," said Robert Ang of Savills in Malaysia. "Limited mainland Chinese buyers," replied real estate broker CB Richard Ellis (CBRE) in Thailand. And while Cushman & Wakefield Indonesia has seen interest from foreign investors despite tough property laws, there has been "none from China per se."
It is not a lack of demand that is stymieing the market. "There are mainland Chinese buyers," said Robert Collins, managing director of Savills Thailand. "But the fundamental issue is that it’s problematic for them to move money out of the country."
No way out
According to Ma Qijia, a professor at Beijing’s University of International Business and Economics who specializes in real estate law, Chinese foreign exchange regulations stipulate that no more than US$50,000 per year can be transferred out of China.
"Chinese law doesn’t explicitly forbid its citizen to purchase residences abroad, but the foreign exchange policy is not yet open to its maximum extent," said Ma.
However, there are the signs that the regulations are slowly being loosened. Joseph W. K. Chan, a partner at law firm Pillsbury, notes that the US$50,000 cap on outbound currency transfers was raised from US$20,000 last year. Chan adds that the country’s foreign currency law revision this summer – though mainly implemented to help limit foreign capital inflows – suggests the government’s willingness to reassess foreign exchange policies.
But for the time being, would-be Chinese investors must look to move the money through other channels, and here the informal network of friends and relatives many Chinese have across Southeast Asia comes into play.
Patrick Grove, executive chairman of ipropery.com, the largest internet portal for Hong Kong, Singapore and Taiwan property, notes mainland Chinese, primarily from Beijing and Shanghai, are the largest source of foreign visitors to his website each month. He cites a "Chinese diaspora effect" as the main reason these countries attract such avid interest.
"Chinese tend to be very familiar with these markets, have friends and relatives already living there, and know of other mainland Chinese that have invested," said Grove. "All of this increases the ‘comfort’ factor for a foreign investor."
The Malaysian portion of Grove’s website also sees significant interest from Chinese visitors. This may be tied to a campaign currently underway in Malaysia to promote the country as a foreigner-friendly destination for second-home owners.
In Wenzhou, seat of much of China’s entrepreneurial wealth, a travel company has just started running tours to Malaysia, specifically to showcase property in Kuala Lumpur. The Wenzhou Overseas Travel Company provides its clients, mostly middle-aged couples, with access to developments and the legal know-how to navigate Malaysian property law.
The pickings are indeed rich. City center prices in Kuala Lumpur increased by 200% over the five years since 2003, and more high-end condos are in the pipeline, according to Cushman & Wakefield’s associate YY Property Solutions. Easy access to loans, waived property gains tax and prices lower than its neighbors make Malaysia an attractive investment destination.
Luxury real estate firm E&O Property Development Berhad (E&O) is looking to capitalize on this opportunity by promoting Seri Tanjung Pinang, a new exclusive development on Penang Island, to Chinese investors.
"China is at a stage where it is looking at outbound investment," said K.C. Chang, marketing and sales director at E&O. "We see some of them becoming second-home owners. Others will invest for capital appreciation."
Yet experiences like those of E&O are the exception rather than the rule. The bulk of the interest still comes from the Middle East, South Korea and the UK, especially in terms of multinational property developers.
Baby steps in Bali
Nevertheless, Indonesia has also caught its first glimpse of the Chinese property investment, in the form of villa-buying in Bali, according to Steven Tjen of CBRE in Jakarta.
There has been a steady increase in tourists to the island paradise since 2006 and China is always among the top five sources of visitors, recently jumping to second place in the list. This exposure has triggered a wave of investment in rental properties, which can also be used as holiday homes when the owners return to the island.
Overall, Bali is "booming," said Mathias Echene, who runs luxury beachfront developer Absolutely Bali. His Hong Kong-registered company handles overall investment of around US$10 million per year. Echene also helps clients negotiate Indonesian property law, which only allows foreigners to buy property leaseholds for 90 years, by connecting them with lawyers and Indonesian partners willing to take a stake in the land.
With the number of Chinese tourists increasing across the region, it is only a matter of time before China’s money finds its way out of the country and down to the palm-fringed coasts of its southern neighbors. However, for those without family networks or businesses ties to Hong Kong or elsewhere, potential property investors must wait for kinder legislation before any great beachfront buy-up begins.