For the last few decades, Asia has experienced one of the most powerful economic booms in history. Property prices – and real estate agents in Asia for that matter – have grown in prominence alongside the region’s investment prospects as a whole.
Yet a mistake that potential foreign investors often make is transposing the world they know into a culture that might do things very differently.
Investing in Asian real estate is the perfect opportunity for investors who want the benefits of emerging markets. But you need to know how to invest to have the most success.
Knowing how real estate agents operate in Asia is key to that success. The specifics of how they function will, of course, vary based on which territory you’re in. But a few things are true about realtors in the far East regardless of the nation.
For one, the role realtors play and their dynamics are very different compared to their function in western markets.
A general rule of thumb is, the less developed a region is, the more important personal contacts are, and the more “hands-on” you’ll have to be to find good deals.
To be able to work properly in foreign markets, we must first understand why they’re structured the way they are. In this article, I will explain how real estate agents work in Asia and how to make the most of the system in place.
Local sellers in emerging Asia often don’t use realtors. They’ll instead simply place a “for sale” sign outside their plot of land, apartment, or house for sale. Word of mouth is also important.
Realtors in Asia: East vs. West
Since before the US became a country, it attracted colonists with the promise of land ownership. Every person was promised a share of the expanding New World.
Over time, as it became a nation in its own right and gained global influence, this idea of a property-owning democracy began to take hold in the Western World. As such, every region even marginally affiliated with the US began to take notes from their real estate philosophy.
Fast forward a couple of centuries and you have a rather streamlined real estate purchasing market where you can shop online, talk to real estate agents, and navigate the system to quickly find the right property for you.
Asia, on the other hand, hasn’t had the same influence. Until recently, it wasn’t uncommon for generations of families to live on the same plot of land or in the same house.
Even nowadays, changing homes often remains a once in a lifetime situation. And because the market has yet to catch up to Western standards, sales are often done far more informally than one would like.
In many frontier markets, the locals don’t use agents at all. They’ll instead market properties based on word-of-mouth and/or simply hang a “for sale” sign outside the window.
If you want to have good deals in places like these, you will have to be a bit more creative than you might expect.
For example, in my first few Cambodian real estate deals, I learned the words “For Sale” in Khmer and rode around on a motorcycle looking for those “For Sale” signs around town.
Then, I took down the phone numbers on the signs and hired a local to call and make appointments to see the properties.
It was all a bit experimental and adventurous. But perhaps it’s a bit too much for you.
As such, while Asian cultures often haven’t quite embraced real estate agents and the like, they sometimes do exist but they tend to cater to the expat community.
Realtors in developing countries like Vietnam and Myanmar are mostly a service aimed toward making foreigners’ lives easier and targeting their deeper pockets. Therefore, don’t expect to easily find a great deal or see the entire market through realtors in some countries.
Condo advertisements try to be alluring. They aren’t a yield-optimized investment though. Of course, the whole point of a condo developer is to profit from the difference between the construction cost and sales price.
How Asian Real Estate Agents Work
The quickest way to lose money abroad is to be stubborn and try to do things “your” way. You must adapt to the on-the-ground realities of the situation, rather than your hopes.
For the most part, you will not find any concept of “buyer’s agents” or “seller’s agents” in Asia. Realtors merely list properties for sale, and generally do not act as a buyer representative.
They can also fluctuate wildly in price – commission rates for realtors vary between 1% and 3%, depending on the country. Rates are lower in places with a high average price per square meter like Hong Kong and Singapore.
For expensive properties in the multimillion-dollar range, commissions may be as low as 0.5%.
Whether they’re worth their commission remains up for debate. Overall, don’t expect all realtors in emerging or frontier markets to meet the standards of those in a developed country.
The most common issues you might find if you rely on them are:
– The paperwork, including the rental contract or property transfer documentation, wasn’t written by a lawyer and isn’t legally binding. So, you might land yourself in a prolonged legal dispute, or have to absorb the loss.
– Rather than being impartial agents, they could have bias and negotiate in favor of one party.
– You’re only exposed to a fraction of the available options on the market, given the often opaque and word-of-mouth nature of the real estate sector.
Local Property Knowledge Is Paramount
A difficult-to-accept fact when investing abroad is that you are an outsider. Likely no amount of living there and learning the language or culture will ever give you the social nuance necessary to navigate the local scene better than a native.
The easy and lazy way to go about it is to just go to those fair few realtors who cater to expats like you. Be warned though, they will often slap a hefty fee on for their services, even if the only thing of value they did was to connect you to an interested party and translate.
You automatically lose a lot of the bargaining power and choice if you shackle yourself to a local realtor – and this is assuming they actually have your best interests at heart!
Wherever there is money to be made, there will be people of ill repute wishing to make a quick buck.
It’s also a huge advantage for these disreputable people if their potential victims can’t be warned by others of their infamy. As such, foreigners without language skills and knowhow are often an ideal target.
Don’t get me wrong: not all of the real estate agents in Asia are like this. But it’s enough that you should keep your guard up.
If you are to be dependent on third parties to help you find good deals though, it’s best to align their interests with yours. As such, I suggest you go down the route I usually do, where I enlist locals to translate for me and contact sellers directly.
Another tactic that I’ve seen work quite well is to go to a top law firm in the country, hire the chief lawyer for some legal procedure, and overpay for the services rendered. Then, you slowly befriend them.
In this way, you enlist someone high up the food chain, you get access to important people in the society (along with their business opportunities), and you will not fall for the typical foreigner traps other more clueless investors fall into.
Regardless of what you ultimately decide on doing though, the key takeaway is that you shouldn’t enter an unfamiliar market without preparation and local partners.
Sometimes it might even be necessary to have a local partner or realtor in Asia. Many countries have restrictions on foreigners owning property on their own.
Overall, realtors do provide a valuable service and offer convenience – especially if you’re a foreign buyer. Yield-optimized investments often require effort and creativity on your part though.
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