Don’t let the growing frontier economy of Laos fool you. This Southeast Asian country is among the region’s most restrictive to foreign investment and you should be careful when buying part of a business or any property in Laos.

Far too many people overlook all the warning signs when thinking about investing in Laos. Granted, it’s one of the quickest developing frontier markets in the world, averaging more than 7% annually over the past decade!

Yet it’s worth remembering the major caveats that the country has as it is heavily reliant on capital-intensive natural resource exports and, especially in less urban areas, it suffers from underdeveloped infrastructure.

Furthermore, what growth does exist tends to be syphoned into the state-owned enterprises, rather than the people.

In this article, we’ll try to do our best to dissuade you from buying property in Laos – although we’ll give the nation’s investment prospects a fair assessment. We will also offer you some better alternatives.

 

Lao-Mountains

From Laos’ language, to the spicy food and its mountainous landscape, the country is reminiscent of Northeast Thailand – but with fewer people and less business activity.

 

Foreigners Can’t Truly Own Property in Laos

Communist nations aren’t often the most investor-friendly countries out there. As a rule of thumb, they tend to be quite autarkic and source their goods either locally or from politically aligned countries.

Hence, investors (and especially foreign investors) are viewed with great suspicion.

Buying property in Laos is no exception to this rule. First off, to say that you can “buy” real estate in Laos as a foreigner isn’t truly the correct term. Every single plot of land in Laos is technically owned by the state.

However, foreigners feel the brunt of it, as they can only lease land for a period of up to 30 years. Unlike other countries with similar regulations, where renewing these leases is a mere formality, Laos rarely offers extensions to foreigners.

Strangely enough though, you can still retain ownership over the structure that sits on the land. This becomes a bit like having a car in a parking spot after you’re no longer welcome – the best-case scenario is a fine, and they might just take it away.

Some expats have tried to get around these restrictions by using clever corporate structures, wherein they own property under a nominee organization in partnership with a Lao citizen.

Yet this is absolutely illegal in Laos and far riskier than doing so in some other nearby countries.

The key question then becomes, why are you even bothering to buy property in Laos when there are better alternatives all across Southeast Asia?

 

What Are The Good Parts About Laos?

Laos’ industrial property market is likely to continue benefiting from the growing push to diversify manufacturing away from China, just as other nations like Vietnam and the Philippines have done.

It’s not unreasonable to expect industrialization in Laos to continue and its GDP to retain its stellar year on year growth.

Furthermore, Laos remains a frontier market. This typically means that if the economy has positive momentum, it can become very lucrative for early investors who took the initial risk and overcame the challenges that were there at first.

I learned this lesson firsthand, as I used to zoom around on my bike looking for Khmer signs in Cambodia that said “for sale”, and I even went as far as hiring interpreters to be able to seal the deal.

I benefited from this adventurous spirit tremendously, and I still recommend investing in Cambodia.

So, there’s definitely an argument to be had. But in my experience as both an investor and someone who has done business and lived in Southeast Asia for many years, Laos is a different situation altogether.

That said, it remains possible that real estate ownership in Laos will become easier in the future. Laos currently has a law in the works that would allow foreigners to lease condos for a period of up to 50 years.

Some analysts have even called Laos “the next Cambodia”, saying that looser restrictions may increase demand from places like China, Hong Kong, Japan and Korea. Yet I remain very skeptical.

 

There’s potential for Laos to become a high-speed rail hub, linking China to the rest of Southeast Asia. However, any profit from cargo or passengers is unlikely to affect the Lao economy significantly – especially when they’re splitting it with other countries.

 

Alternatives to Investing in Lao Property

Leasehold real estate is generally an uphill battle. From the moment you sign the contract, the timer is ticking down. There’s constant downward pressure on the value of your assets since your control over the land will eventually expire.

Imagine renting a parking spot from someone who goes on record saying that all resources under their control will be used as they best see fit. Not only that, but they’ve also mentioned that they aren’t afraid to take property if they think it’s useful.

That’s exactly what happens with Laos, where even their constitution highlights that financial development is geared towards “creating the material conditions to move towards socialism.”

Southeast Asia hosts several nearby alternative markets that offer freehold ownership and better investment potential. We’ve covered these countries in detail, and here are a few of them:

  • Cambodia – offers straightforward property investment in a rapidly developing economy
  • The Philippines – has excellent demographics and growth potential
  • Malaysia – offers you an investor visa and vastly reduced taxes for international sourced income

 

Conclusion: Buying Real Estate in Laos Isn’t Worth It

Not everyone should undertake direct investment in frontier market economies. It requires a combination of willingness to take calculated risks and solid business sense.

Possessing these traits in the right proportion is essential, as pure mastery over numbers and analysis will only get you so far.

Sometimes you need to be creative and willing to approach problems from never-before-seen angles.

On the other hand, if you’re too willing to take risks without a solid understanding of your situation, you might as well go to a casino.

Laos has all the superficial sheen of what you want in a frontier economy. It’s moving in the right direction. Yet, timing is key. As the famous British economist, John Maynard Keynes said, “the markets can remain irrational longer than you can remain solvent.”

Investing here in some capacity could eventually be a good idea. Jumping in decades too early is worse than not jumping in at all though.

While it’s worth keeping an eye on Laos, I wouldn’t prioritize investment here until the business landscape is favorable enough to warrant the effort and the risk. Nor would I generally suggest leasehold property in any country, except maybe a term longer than 100 years.

 

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an international stock trader and property investor based in Thailand, Cambodia, and several other places. Reid manages the world's first and only frontier market real estate fund and has been featured in publications such as Forbes, Property Report, the South China Morning Post, and Seeking Alpha. You can download his free investment guide by clicking here.

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