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Ziv Nakajima- Magen is Manager of Asia-Pacific, Nippon Tradings International (NTI), which specialises in assisting investors in capitalising on Japan’s vast property market.

IS SOMETHING ‘BUBBLING’ UP?

Q :Do you think downtown Tokyo is currently experiencing a property bubble?

ZNM :This is a very difficult question to answer, considering that market peaks, such as property bubbles or the end of deflationary cycles, can usually only be identified in retrospect. Looking at current property prices and demographics, however, we can see the following: –

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1. Prices have only been rising for the last three years, and only in the heart of the biggest cities, in the vast majority of cases.

2. The rise curve is very moderate, particularly in comparison with the last 25 years of dropping/flattened values, which is far longer and sharper – prices have only inched back to about half of what they were a decade ago – about 20% of the value they have lost altogether since the early 90s’ bubble burst. Even if the current trend were to continue at the same approximate rate – 6 years to claw back a decade of losses – we would have another 6 years before we were anywhere near the previous bubble peak.

The question, then, is whether anything is likely to aggravate this trend to any sudden and volatile upward peak, which may accelerate the forming of an unsustainable property bubble. Considering Japan’s demographic issue (it is the world’s fastest shrinking and ageing population), the current lack of improvement in birth and immigration rates, and the government’s half-hearted measures to tackling these issues, I fail to see how this can happen.

It doesn’t seem to me as if prices will greatly drop in the next decade, since slowly shrinking and altogether disappearing small townships and villages are slowly conglomerating into the bigger metropolitan centres, which are experiencing a growth in population – but I also do not believe they will rise very sharply, or at least, not at a much higher rate than they currently are, barring perhaps a temporary hike as the 2020 Tokyo Olympics draw near – but these sort of temporary hikes tend to auto-correct in the year immediately after the event.

Having said all of the above, this is of course only speculation and an educated guess at best. As always in property investment, sustainability of rents and steady, reliable cashflow should be the cornerstones of any purchase – with any capital growth potential to be considered a bonus, if and when it occurs.

Ignoring this rule of thumb, while occasionally a successful gamble which many have profited on, is exactly what causes property bubbles in most cases, as well as disastrous personal losses – and something which I, personally, do my best to avoid. This is the strategy I pursue with my own investments, and the one we recommend to our clients as well.

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Dan is an experienced investor with a global investment portfolio who also advises Australasian high net worth individuals. He can be contacted at Dan@ Jaguar-AM.com

INVESTING STRATEGIES DURING CURRENCY VOLATILITY

Q :With the devaluation of the Chinese yuan and other Asian currencies, how should an investor interested in properties in Asia strategise for the next 6 months? Should he just look outside of Asia to European, American or Australian properties; and stay clear of Asian properties for the time being?

DV :Markets have experienced a period of high volatility during the 3rd quarter of 2015. This has especially been the case for currency markets and especially so for emerging markets in Asia. In fact, Asian currencies had their biggest quarterly loss since the global financial crisis, having been battered by China’s surprise devaluation of the yuan and the prospect of a U.S. interest-rate increase.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies outside of Japan, dropped 4% in its worst performance since 2008. Malaysia’s ringgit has been the worst performer with a 14% slide as oil prices retreated and Prime Minister Najib Razak was caught up in a corruption investigation. The Singapore dollar retreated 5.3% this quarter, the Philippine peso weakened 3.5% and India’s rupee dropped 3.1%. Vietnam’s dong retreated 2.9%, its worst performance since 2011, as authorities devalued the currency for the third time this year following China’s weakening of the yuan. The yuan fell the most in a number of years as an economic downturn worsened in China. Furthermore, there remains speculation that the US Federal Reserve Chair will increase interest rates this year, which is putting additional downward pressure on Asian currencies.

For property investors, property is very much a play on the macro story of the country. And with declining economic growth (both domestic consumption growth and exports), the outlook for the next 6 months looks perilous at best. The Asian Development Bank this month lowered its 2015 growth forecast for the region’s developing economies to 5.8% from 6.3%. With this declining macroeconomic growth, pressure on currencies and property markets in some Asian countries not far off peak levels (especially for residential), tactically it will be difficult to outperform purchasing local Asian property in this environment.

A silver lining in this otherwise bleak outlook, is that Asian governments will be pressured to boost their economies via interest rate cuts and other stimulus, in order to try to boost local consumption, reflate asset markets, and increase competitiveness of pricing of exports through devaluation of currencies (where not pegged). This means that for property investors already exposed or needing to be exposed to Asian property markets, a good hedging strategy would be to take advantage of cheap gearing in the local currency, against the asset.

Overall, my preference is for USD-denominated assets, followed by GBP. I remain cautious on JPY, EUR and AUD assets from a currency perspective. For Asian investors, in these volatile and difficult environments, my strategy would be to focus on value-add strategies including development, renovation, and change-of-use redevelopment. My preference on a relative basis is still to look for high-yield alternative property plays including self-storage, logistics and medical centres vs the traditional buy-and-hold residential strategy.

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Aidan Wee is the Managing Director of Somot Realty Co., Ltd. and is a Licensed Property Salesperson (Accredited by the Council of Estate Agencies in Singapore). www.Somot-vn.com, (+65) 9345 8633 or e-mail aidan.property@ outlook.com

WHAT PROPERTY CAN VND1 BIL BUY IN VIETNAM?

Q :I have VND1 billion (USD44,480) to spend on property in Vietnam. Specifically, I am looking for a low-rise, low-density, and low-maintenance property for own use. Can you give me an idea as to where I could find this type of property? Location is not an issue although I prefer somewhere quiet, without too much traffic, and preferably close to water bodies e.g. seaside, lake, river, reservoir.

AW :With a budget of VND1 billion, it is not possible to get a piece of low-rise property in any urban districts in Ho Chi Minh City (HCMC) or matter of fact any major cities in Vietnam. Residential property products in Vietnam tend to be either high-rise (apartments) or low-rise (landed), it is very uncommon to come across a strata titled low-rise apartment for sale.

vietnam3Current property trends indicate small strata units are built within the city centres and the sizes increase the further away we are from the city centre, as such prices will correspond accordingly. This is in part due to the cost of purchasing land. Another point of contention is the trade-off of the conveniences of city living with the peacefulness of rural living.

Developers are getting in on the act of building vacation homes all along water bodies such as seaside and rivers. Places like Nha Trang, Danang, Vung Tao, Halong and Phu Quoc are seaside destinations which are very popular with developers. But these locations are not cheap as they tend to target buyers that are financially well-off to travel (prices will most definitely not be VND1 billion).

In addition, developers are starting to attract buyers to riverside property within the cities and the prices for property located along rivers within the proximity of the cities are escalating. Even rural districts in Ho Chi Minh City have already started to develop as developers purchase land from the government to build high-end to luxury classed property. Nha Be to the south of District 7 and Binh Chanh to the west of District 7 are at the forefront of expansions within the city.

That said, your best bet of finding a VND1 billion property in and around Ho Chi Minh City that meet most of your requirements in being low-rise, low-density, quiet, limited traffic and close to water bodies, is in suburban districts in the cities or the provinces surrounding the cities. You will have to purchase a whole landed house as strata ownership is not favoured.

vietnam4Less prominent rural districts in Ho Chi Minh City include Cu Chi in the extreme North and Can Gio in the extreme South. Due to its travelling distance from the city centre and the fact that urban development has not caught up with them, there is a very good chance of finding a landed property within your budget.

Southwards of HCMC lies the provinces located in the Mekong Delta; with its extensive network of streams and tributaries branching out of the Mekong River, it is not difficult to find a property located near a water feature. Land prices here are still relatively cheap and it might just be possible to find something within your budget.

Northeast of HCMC lies the provinces of Binh Duong and Dong Nai with rivers that criss-cross them. However, these are rapidly developing provinces driven by industrial zones and the price of land here is not cheap. I am not sure if you can find anything within your budget; there might just be a remote opportunity.

Having said that, it is unfortunate that foreigners are not allowed to own independent landed property that are not part of a real estate development project in Vietnam. The existing Law on Residential Housing (more specifically the section that addresses foreign ownership) is a start for Vietnam to be on the global grid as a residential investment destination, but it cannot be assumed to be a comprehensive piece of legislation on foreign ownership of residential properties, as there are a lot of real estate products and market segments within the residential property industry that are not addressed by the current law.

The said legislation is still very much a work-in-progress and as it stands, it seems to allow foreign ownership only for selected properties; apartment units and landed housing as part of a development project. The revision in the law can be seen as a move to a more liberal market for foreign ownership, however it is not an all-encompassing one. Hopefully in future, the law regarding foreign ownership will be expanded to cover the full spectrum of products in the property market. Photography by Jan Yong

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Pierre Leung is the Sales Manager of Fresh Property, a boutique property agency that specialises in sales and rental of residential property in the Sukhumvit area of Bangkok.

A VILLA BY THE THAI BEACH

Q : I am planning to buy a beachfront property in Thailand. Apart from Patong and Phuket, where other places in Thailand can I buy a beach front or island villa or condominium unit? Is there any minimum price for foreigners? Can you name me some of the more established developers specialising in such properties?

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PL :Two coastal destinations come to mind – Koh Samui and Hua Hin, which offer two distinct investment opportunities.

Koh Samui is an international tourist destination well-known for its idyllic beaches; the island is relatively small in comparison to Phuket, however there are numerous developments on the island and purchasing a holiday home or investment is possible. Please note that to preserve the environment of Koh Samui, the government has imposed strict building regulations resulting in restrictions in the development of high-rise condos. So you will tend to find mostly villas and low-rise condo developments on the island. Developers on the island tend to be boutique companies, the best way to judge their developments is by doing due diligence on the success of their past/current projects.

Meanwhile, Hua Hin, being located only a few hours’ drive away from Bangkok, is more of a weekend retreat for weary city dwellers. It has also been a popular retirement spot for European expats. His Majesty the King of Thailand has his permanent residence in this town and this has partly contributed to the gentrification and development of Hua Hin. The town has different types of properties on offer from villas to condos and apartments. Numerous high-profile developers have set-up shop in Hua Hin, such as SC Assets and Sansiri.

On a separate note, there is no minimum price for foreigners to buy property in Thailand. However foreigners can only own “Freehold Condominiums” (under their name), as under Thai Law, foreigners cannot own land on a freehold basis. While there are ways to get around this, buyers should seek legal advice from a reputable law firm before committing to the purchase of property such as villas with a plot of land attached.