As returns in Australia, Hong Kong, Japan and New Zealand shrink in the face of high demand and increased restrictions, real-estate investors in Asia are looking for new places to go, with Malaysia and Thailand among their targets.
Malaysian Prime Minister Mahathir Mohamad has already threatened to pull away the welcome mat for foreigners in the huge Forest City residential project in Johor. Meanwhile, developers in Thailand are looking for foreigners to fill their empty condo units, but authorities are concerned about affordability and a bubble forming in some property segments.
"The tension around foreign investment is always going to be much more acute when affordability is getting worse," Brendan Coates, a researcher with the Grattan Institute, an Australian public policy think tank, told the Straits Times newspaper in Singapore in August.
When local people get "priced out of the market", he said, foreign buyers may be blamed even when their effect is small.
Varying restrictions or taxes on foreign purchases already are in place from Hong Kong to Sydney, the top two destinations for real estate investors worldwide last year. They include higher stamp duties, restrictions on property presales, and limits on the types of homes that can be bought.
But as Australia, Hong Kong, Japan and New Zealand are getting too expensive even for crazy rich Asians, Singapore is now in their sights. The city-state earlier in the decade struggled with a dangerous spike in property prices and does not want to see a repeat, so it has just increased a tax on overseas buyers.
But why is real estate getting so much more expensive in Southeast Asia, and will the protectionist trend spread to other countries in the region?
Desmond Sim, head of CBRE Research for Southeast Asia, told Asia Focus that ever since the 2008 global financial crisis, the world economy has been awash in cheap money thanks to the monetary easing policies of leading central banks. Interest rates have only begun to tighten in the past year.
Residential values, he said, have been inflated across various cities as more capital flows into the sector, jeopardising affordability and putting pressure on governments to respond.
While some jurisdictions take steps to curb this enthusiasm via measures that involve taxation or loan-to-value caps for borrowers, others have chosen to close the tap by shutting out or restricting foreign activity.
"While some capital value inflation may be attributed to foreign money, exuberance in the domestic market can also largely be attributed to the price escalation," he said. "Nonetheless, as we embark on a rising interest-rate environment, the higher cost of liquidity may eventually creep in to sieve out the exuberance of this capital movement into various residential markets."
The debate over foreign ownership will continue even though it is not the root of all evil, but merely one of many factors influencing the market.
Many in Thailand will recall the headline news from 2012 when a report from the Office of the Ombudsman said that around one-third of the Kingdom's land, or around 100 million rai, was already in the hands of foreigners, mostly Singaporeans. The story was revived on social media last month, to predictable outrage from nationalists. However, the flap was short-lived, as talk about a property bubble surfaced to grab public attention.
Bank of Thailand Governor Veerathai Santiprabhob warned last week of a debt-fuelled bubble in the housing market, resulting from "search-for-yield behaviour".
The central bank is concerned about oversupply in some condo segments which has resulted in artificial demand and higher non-performing loans (NPLs) in the mortgage segment. Mortgage NPLs rose to 3.39% in the second quarter from 3.38% in the previous quarter.
Finance Minister Apisak Tantivorawong was quick to note, though, that developers typically trim supply if a bubble forms to prevent losses. But they are continuing to build at a rapid rate, which suggests they believe demand will prevail. But will it and where will it come from?
Wei Jie, a real estate agent in Bangkok, told the Nikkei Asian Review in August that his business was booming because of demand from Chinese investors. "My business has been going really well," he said. "There are so many Chinese coming to Thailand and purchasing properties for investment. In the first half of this year, I already earned more money than I did in the past two years."
China's economic slowdown, a weaker yuan and poor performance of the country's stock markets will continue to push Chinese investors outward. The ongoing trade war with the United States will stoke even greater desire to look abroad.
Thailand is now the third most desirable destination for Chinese homebuyers after the US and Australia, according to a survey published in February by Juwai, a portal that lists overseas properties. The Bangkok-based developer Risland estimates that 20% of all new condos built in Bangkok are now owned by buyers from mainland China or Hong Kong.
Since 2015, Chinese buyers have poured US$10 billion into local condos while Japanese and Singaporeans, the two other top foreign homebuyer groups, contributed $8 billion and $2 billion, respectively.
Condos are the only type of properties foreigners can legally purchase in Thailand, up to a limit of 49% of the space in a development, as there is a ban on foreign ownership of land. The top destinations for foreign buyers are Bangkok, Chiang Mai, Phuket and Pattaya.
Prospective buyers inspect a model of the Lumpini Suite Phetchaburi-Makkasan condominium by LPN Development Plc in Bangkok. The developer has hired Chinesespeaking staff to accommodate investors from abroad. Photo: LPN Development PLC
But Khanachai Kittisorayut and Thanawin Suppakarnpanich, analysts with CBRE Thailand, believe the country is not a top destination for foreign institutional investors because of foreign ownership restrictions. Overseas investment has come mainly from property development companies forming joint ventures with Thai partners to build new projects, mainly in the residential sector, he said.
Other analysts believe that although there is demand from Thai institutional investors for income-producing properties, very few existing owners of these properties want to sell. Those that do would prefer selling to a property fund or a real estate investment trust (REIT) that they have sponsored.
At the same time, CBRE notes, developers are also looking for income-producing properties to diversify from the residential-for-sale sector. Lack of availability of existing assets is driving them to build their own investment properties.
The central bank's warning of a debt-fuelled bubble in the housing market from oversupply is a clear sign that domestic demand is still subdued. It is pressing financial institutions to tighten mortgage loan approvals.
Foreign buyers could be a boon for the real estate sector but with the problem of rising housing prices, the current government and the next administration will have to carefully find ways to strike a balance between saving the real-estate sector and keeping their citizens happy.