House hunters dreaming of an oceanfront villa on the white-sand beaches of Thailand or Bali can now find significant bargains, thanks to wild currency dips in Southeast Asia over the past year. But investing in these properties can mean stomaching some risks.
In Thailand, property is now 10% to 15% less expensive than it was at the beginning of 2015, partly due to the depreciation of Thai baht, according to real-estate agency Engel & Volkers Phuket. Since May 2014, the Thai baht has tumbled 10.5% against the U.S. dollar.
Some luxury buyers are taking notice. Barry King, managing director at Prime Real Estate Phuket, says that thanks to price declines on inland villas, he sold about 20% more properties priced at $3 million or more in the past year, though he declined to disclose the number of homes he sold.
But many potential buyers are taking a wait-and-see approach. Andrew Hunter, managing director at Hunter Sotheby’s International Realty in Phuket, says inquiries about properties priced above $2 million have risen in the past year—but actual sales have been soft.
Fears about political and economic instability are likely scaring off buyers, agents say. Since the May 2014 coup that removed democratically elected Prime Minister Yingluck Shinawatra, Thailand has been under military rule. While the regime has tried to woo foreign investment, Thailand’s economy remains shaky.
Agents and analysts say that the military junta has not created significant upheaval in the daily life of Thailand, particularly on the island of Phuket. “The tourism sector has benefited from the relative political calm since the military took over,” said Krystal Tan, Asia Economist at research firm Capital Economics. Tourist visits rose 19% in 2015 compared with the year earlier, despite a mid-August bombing in Bangkok. Tourist arrivals are often a precursor to foreign buying of property, say agents.
The number of wealthy Chinese buyers in southeast Asia, already on the rise, could also pick up as the weakened yuan and volatility in the Chinese markets adds pressure on wealthy Chinese to get money out of the country, analysts say.
Last January, Dominic Powers, who is based in Hong Kong as the managing director of marketing firm Epsilon, bought a 6,000-square-foot house north of Laguna, Phuket. Mr. Powers, age 43, wanted a place that he and his wife could retire to and that his three daughters could call home.
He decided to fix the price in Hong Kong dollars, because he “was not sure in January which way the Thai baht would go.” He estimates that had he set the price in Thai baht, he would have saved the equivalent of about 700,000 Hong Kong dollars when he finally closed on the house in September, due to the baht’s plunge in the intervening months. Mr. Powers said he was not concerned about losing out due to currency fluctuations, since he was focused on finding a new home for his family.
The Indonesian island of Bali, another popular vacation home destination, saw an 11.3% drop in the Indonesian rupiah against the U.S. dollar in the past year. A slowing Indonesian economy has also dragged down the property market in the commodity-rich nation. Dominique Gallmann, CEO of Bali-based real-estate broker Exotiq Properties, says the average sales price for the agency has dropped to less than $500,000 from $750,000 in 2014. Luxury prices in South Bali dropped an average of 15% to 25% by the end of 2015, with the segment above $1 million suffering more than lower-priced properties, he added.
Martin Lack bought a classic two-story Balinese house of teak wood on 1,400 square meters of land last January, at what he said was likely “the peak of the market.” The Swiss financial adviser said he and his American wife moved to Bali full-time two years ago, partly because property in Hong Kong is so “outrageously expensive.”
Mr. Lack, a former UBS banker, pleaded guilty in 2014 to federal charges of helping Americans evade U.S. taxes by setting up Swiss bank accounts. He was sentenced to five years of probation by the Florida Southern District Court.
“After 30 years in banking, I just opened a language school in Bali: new life, new business but the same family and that’s the most important,” Mr. Lack said of his life in Bali.
The Lacks bought the house, the family’s third in Bali, because the family needed a bigger house, and he said he wasn’t prioritizing the currency exchange in his decision to purchase.
Mr. Lack said if he ever decided to sell his house, it would be more difficult because Bali’s economy has been dragged down by the overall Indonesian economy. “The market is quite lackluster. Buyers are probably not as eager as before,” he said.
Authorities have stepped up security on the island after recent attacks in Jakarta, which were linked to Islamic State. Bali, which is majority Hindu rather than Muslim, is over 700 miles away from the Indonesian capital. Earlier bombings in 2002 and 2005 on the island led to steep drops in tourist arrivals.
No currency in the region performed as poorly as the Malaysian ringgit in 2015, which fell over 22.7% against the U.S. dollar. For foreign buyers, that has created some opportunities in the luxury housing market.
PropGoLuxury, an online luxury real estate platform, says there has been a 45% spike in inquiries into luxury Kuala Lumpur properties this year, with the majority coming from Singapore.
So far, however, agencies say they have not seen a spike in purchases by foreign buyers. The government, to curb speculation, raised the minimum amount for foreign purchases of property to MYR1 million ($237,316) in March and banks tightened lending restrictions, making it more difficult for buyers to obtain loans.
Foreigners may also be “spooked” by the political climate, says Singapore-based property consultant Khalil Adis. Malaysia’s anticorruption agency said Wednesday it wants to review a decision by the country’s top prosecutor clearing Prime Minister Najib Razak of wrongdoing regarding nearly $700 million transferred into Prime Minister Najib Razak’s private bank account. Mr. Najib has denied any wrongdoing.
Brokers say the slowdown in sales presents a good buying opportunity, especially as new developments are going up. The number of high-end condominiums priced above 1,200 ringgit a square foot will increase to 5,192 units in Greater Kuala Lumpur at the end of this year, estimates Savills Research, compared with 2,216 units in 2014.
Source :The Wall Street Journal
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