Countries like Thailand and Malaysia are waking up to the benefits that second-home buyers can bring to the economy.
A
few countries in the region are starting to realise that mass tourism
isn’t the only way to benefit from their beautiful beaches and mountain
hideaways. After two decades of aggressive tourism campaigns, Asian
countries are now competing with each other in the second-home market.
Foreign
tourists are a blessing – they bring plenty of cash and generate jobs,
which can be a huge contributor to the economies of tourist-friendly
nations such as Thailand and Malaysia. But tourists are a fickle bunch
too. Thousands cancelled holidays to Phuket when bird flu killed a few
elderly people in Hong Kong and the aftershock of terrorist attacks in
Bali were felt across the region.
Tourism also brings lopsided
development – idyllic beachfronts are converted into first-world
facsimiles without much social benefit to the wider community – while
attracting expatriates or property-owning repeat visitors offers a
chance to move away from the seasonal and volatile income of tourism
toward something more stable and, perhaps, of greater social value to
local communities.
“For 30 years everyone focused on tourists,”
says James Pitchon, of CB Richard Ellis in Thailand. “You had Amazing
Thailand, Malaysia Truly Asia, Hong Kong Disney and all that, which was
purely focused on developing tourism. That is changing now. People are
seeing that attracting foreign homebuyers is something very positive.”
The
economic benefit is obvious. People who own a property spend a lot more
money each year than a couple relaxing by the beach for a week, and
they return year after year. The money they spend is more likely to end
up in local pockets, supporting and sustaining the local economy rather
than transplanting it. Long-term visitors are also more likely to learn
the language and to be sensitive to the local culture – as well as
being committed to preserving the idyll that they have invested in.
There
are two categories of people who make up this anti-tourist universe:
the rich middle class types who want a holiday home they can visit a
couple of times a year and the retirees who either want to winter by
the beach or simply want to up sticks and live out their days in
sunnier climes. Both groups offer more reliable income than the tourist
crowd and some countries are now wising up to this.
The
international schools and first rate hospitals that follow also provide
a better range of employment opportunities than the dive schools and
go-go bars that follow package tourists, and retired professionals
tired of lounging by the pool often volunteer their skills to locals
through part-time teaching posts.
Indeed, the greying
populations of Europe and the US may be bad news for their home
economies but they are a positive boon for countries that can offer
mild winters, a high standard of living and cheap healthcare – as well
as a pain-free way of taking advantage.
In this regard, Malaysia
is leading the way. It first started to offer breaks for retirees under
a scheme called Silver Hair, but recently launched a much broader
programme under the Malaysia My Second Home brand, offering incentives
for people to buy a home in Malaysia.
“Kenji and Akiko,” model
silver-hairs that are featured on the Malaysia My Second Home website,
are so fascinated with the Malay culture that they are taking dance
lessons and wearing batik "just to get the feel of the culture."
The
perks apply equally to genuine retirees and to people who just want to
buy a second home in Malaysia. After registering in the scheme,
successful applicants get a five-year visa that allows them to come and
go as they please, without any minimum annual residence requirement.
The scheme entitles you to buy one or two properties with a total value
of at least M$250,000 ($74,000), or M$350,000 in certain parts of
Sarawak. Unlike Thailand, you don’t have to pay cash – you can get a
mortgage for up to 60% of the value from any commercial bank operating
in the country, including international outfits such as HSBC.
You
can import a car or buy one locally without paying sales tax or import
or excise duty, which can amount to a saving of thousands of dollars if
you insist on a Range Rover or X5. You can ship in furniture and other
household effects without the need to pay any duty, you can hire a
domestic helper and bring your kids along as dependents, and you don’t
pay tax on any income remitted into the country.
All in all,
it’s a pretty sweet package and to date there are 8,000 expats living
in Malaysia under the scheme. After the five years you can either apply
for permanent residency or simply opt for automatic renewal of the visa.
Amazing Thailand?
Thailand
is Asia’s favourite destination for holidaymakers, so it’s no surprise
that it is also the most popular place for holiday and retirement
homes, primarily in the country’s luxury resort areas: Phuket, the
Andaman Coast and Koh Samui, as well as the traditional resort towns
within easy reach of Bangkok: Pattaya, Hua Hin and Cha Am.
The
success is despite of, rather than because of, the Thai authorities.
Proposals mooted by the generals who have been running the country
since the military coup in September 2006 have made it much more
confusing for foreigners to buy property in Thailand, and it wasn’t
very straightforward to begin with.
Before the coup Thai
officials had adopted a loose interpretation of rules preventing
foreigners from owning land. The letter of the law stated that, in
effect, foreigners could only own a maximum of 49% of the land area of
any property, which could easily be circumvented by setting up a
company in which the foreigner would hold 39% (the maximum you could
typically get away with without provoking an investigation by the
Central Land Bureau), while the rest would be held through Thai
nominees. The company would be structured so that the foreign party was
the sole director and had sole control of the company.
But since the generals took charge this cosy racket has come under scrutiny.
“It’s
guesswork at the moment,” says one lawyer in Thailand. “What we’ve got
right now is a situation where at least two different sets of rules
overlap and contradict each other, and it’s anyone’s guess which will
eventually prevail.”
Under the Land Code a company is
considered Thai if 51% of its shares are owned by Thai citizens. But if
the generals get their way a completely different standard could take
effect and, at least for the moment, is already being followed in some
respects. Nominees are no longer used to satisfy the shareholding
requirements and in the future the board of directors may have to be
majority Thai and differential classes of shares may no longer be
recognised.
“In many ways we’re back to where we started in
Thailand – we’ve got 30+30+30-year leases,” says Pitchon, referring to
an arrangement where the property is bought by a Thai and leased back
for 30 years, with an option to renew. “And it’s still a cash market;
there’s no ability to borrow money.”
But Pitchon says there is
still strong demand in Thailand from foreign buyers despite all the
restrictions. It is easy to understand the attraction. “For many buyers
Thailand is a lifestyle purchase, not purely a financial investment,”
he says.
In that sense, Thailand offers Asia’s happiest
compromise between picture-postcard holiday destinations and modern
comforts: reliable telephone and internet connections, well-stocked
supermarkets brimming with familiar foods, decent hospitals and so on.
Joe Cole, a Premiership footballer for Chelsea, recently bought a condo
overlooking the Black Mountain golf course in Hua Hin.
The condo
market isn’t affected by foreign ownership rules, at least on an
individual basis – so long as the property isn’t bigger than 49% of the
building’s total floor space there is no ownership issue – and this is
likely to be the main driver of growth in the second-home market in
Thailand at least until a more sensible regime is adopted.
In
places such as Phuket and Koh Samui one of the latest trends is a
combination of second-home and investment property developed in tandem
with one of the five-star hotel operators – where the hotelier manages
the property in return for a share of the income. The Shangri-La in
Phuket is currently building the first such project and the W Hotel in
Koh Samui is in the planning stage of a similar scheme.
Even
outside the condo market foreign interest is still high. Buyers are
accepting the 30-year lease, but deals are migrating towards the bigger
and more reputable developers.
Thailand’s authorities may not be
helping much, but it is following a path similar to Spain regardless,
where the market has already moved from package holidays to property
ownership. There are somewhere between two and four million foreigners
who own properties in Spain.
To be fair, the trend hasn’t
completely escaped the Thai authorities. In mid-2006 it introduced its
own retirement visa, but the scheme isn’t much of an inducement.
One-year visas are begrudgingly handed out to people over 50 who
deposit Bt800,000 ($25,000) in a Thai bank or can demonstrate an income
of at least Bt65,000 a month.
Beyond Thailand
Still,
Malaysia is not alone in recognising the potential of the second-home
market. Indonesia is revisiting its rules and Vietnam has already paved
the way for more foreign ownership with 50-year leases and is
considering even longer ones. So far most of the interest s
concentrated in the resort areas of Danang, Hoi An and Hue, but even
the condo market in Saigon is buoyant, according to CB Richard Ellis.
Cambodia could be the next market to enter the field.
Even
Singapore, somewhat surprisingly, has entered the second-home market
with its Sentosa Cove development, where foreigners who buy properties
are eligible for visas.
Thailand remains the market leader
despite itself, but to really capitalise on its advantage the new
government will need to introduce 99-year leases and consider easing
the rules on foreigners buying residential property. If not, there are
plenty of competitors waiting to lure would be homebuyers.
This story first appeared in the Private Capital supplement that was published with the November issue of FinanceAsia magazine.
Copyright FinanceAsia.com Ltd., a subsidiary of Haymarket Media Ltd
