East Meets West at 5th Annual Real Estate Connect Summit

The Asian Real Estate Association of America recently held its 5th annual East Meets West Real Estate Connect Summit in New York City. The event brought together many real estate professionals from both the U.S. and Asia who shared their vast knowledge and experiences pertaining to residential and commercial real estate in Southeast Asia.

One of the more interesting sessions centered on investing in the residential real estate market in Japan and Indonesia, and, specifically, the explosive growth, opportunities, challenges, risks and solutions in Cambodia, Singapore and China. The panel consisted of:

• James Berger, Jia Law Group (moderator)
• Will Heishman, President of Stasia Capital NY
• Nicolas Medrano, Director of Skidmore, Owings & Merrill
• Sam Suzuki, Managing Director of EXP Cambodia
• Jerry Wang, CEO of Haitou Global
• George Xu, President of Century Development Group

The group led with interesting insights on the fact that foreign investors in those Southeast Asian countries typically are allowed to buy condos, but are rarely allowed to own land. Specifically, in China, foreign companies and individuals are prohibited from owning properties. In Cambodia, land can be leased directly by a foreigner, but can only be owned by a foreign developer or investor via a local company. However, the costs associated with setting up a landholding company are significant. There are high maintenance costs as well as taxes on rental property income. Further, investors must understand the risks of using a local partner. For instance, if a business arrangement with Cambodian partners leads to litigation, the courts will often favor the locals over foreigners.

Cambodia

James then asked Sam why he moved to Cambodia to pursue the real estate market. Sam indicated that he liked that he can use U.S. dollars in Cambodia so that he could avoid local currency exchange risk. Another reason was the potentially quick ROI. He saw that the demographics were driving up the demand for housing in the near future because 65% of the Cambodian population is age 25 and younger. He realized the demand for and growth of residential real estate in Cambodia today looks like Vietnam did a decade ago. In some cases, he has seen returns as high as 50% within six months.

Singapore

Nicholas noted that the residential real estate market In Singapore is very different from the rest of Southeast Asia. It has been a relatively safe haven for development compared to emerging Asian countries such as Indonesia. Investors have seen a very high ROI in Singapore as property values have risen. It should be noted that the government does have the power to step in and slow things down if it feels the market is moving too quickly. Nicholas added that “the government has a very strong conscience toward sustainability, wellness, sports and a healthy lifestyle, and it is those factors that make it head and shoulders above many of the other markets.”

China

Even as the U.S.-China trade war continues to drag on, Chinese investors are still investing in the U.S. residential real estate market. However, deals are more discreet, such as through joint ventures with U.S. partners to avoid the Chinese government’s control over capital flow outside of China. George indicated that the U.S. economy as a whole is still the best in the world. Chinese investors do have one concern with U.S. real estate, which is the Foreign Investment in Real Estate Property Tax Act of 1980. The Act includes that 15% of the amount realized on the disposition of real estate assets must be withheld at the time of sale, exchange and liquidation.

Investing in Southeast Asia certainly has its risks. But the old adage “no risk, no reward” still applies. The takeaway is that in order to navigate these risks, use local experts and partners who really understand the culture and regulations. While this approach may not eliminate risk entirely, it can help minimize it—which could mean the difference between profit and loss.