Last updated April 4th, 2022.

 

Soon after hiring us, our consulting clients often ask for an opinion on their current global investment plan. “Is buying property in [country name] a good investment?”, they’ll enquire.

It’s a fair question and we always happily answer it. Regardless, our answer to this question is always relative to other investments they could make – not just simply whether a client’s chosen investment is profitable.

After all, why invest in property somewhere if you can make better returns in a different market? Opportunity cost is a very real factor.

Could you make money from buying real estate in Manhattan, for example? Probably. Lots of people have made, and continue to make, decent returns there.

However, “decent” isn’t enough for us. We don’t think something qualifies as a “good investment” merely because it won’t put you in the red.

Purchasing real estate somewhere closer to home with 5% rental yields might seem okay at first glance.

What about owning property in a nation with 7% rental yields, superior capital appreciation potential, and a booming population with an average age of 25 though?

Keeping that spirit in mind, here’s our list of the three best countries to buy real estate in Asia.

 

#3: Malaysia

Property in Malaysia is a good investment simply because of the country’s low prices. These are helped even further by an unusually weak currency.

In the late 2010s, the Malaysian ringgit ranked as one of Asia’s worst performing currencies. Yet this won’t be the case forever. The ringgit is now at a twenty-year low and has few places left to go besides upwards.

Any investors bringing foreign currency into Malaysia should benefit from favorable exchange rates. Returns and capital appreciation will also be compounded once the ringgit rises.

Buying a condo unit in the nation’s capital of Kuala Lumpur will cost you less than in Bangkok – or even Saigon. That’s despite Malaysia being one of the most developed, modern countries in Southeast Asia.

Real estate in Kuala Lumpur’s city center sometimes costs around US$3,000 per square meter (~$30 per square foot). It’s around half the price of similar properties in Bangkok, for example.

We don’t recommend Malaysia because of strong market fundamentals or high cash flow. In fact, vacancy rates and supply are both at dangerous levels. Cities here arguably have the region’s lowest rental yields too.

But Malaysia also enjoys strong population growth and urbanization rates, combined with a rising middle class. Prices will rise once fresh demand and lack of available land in cities like Kuala Lumpur and Penang catch up with reality.

Robust demographic trends are a common factor between the best countries to buy real estate in Asia, and Malaysia absolutely has it.

 

#2: The Philippines

High-rise condominiums in the nation’s capital of Manila remain overvalued. These are often marketed toward foreigners and their supply is at a dangerous level.

With that said, you’ll find more opportunity in landed properties, such as villas and townhouses.

Real estate values are still reasonable in some cities, like Cebu and Davao. Just remember that buying real estate in the Philippines is a good idea because of its future potential rather than low prices in the present.

The Philippines is one of the densest countries in the region. Over 100 million people are living on the archipelago. Combine this with rapid population increase and Southeast Asia’s highest GDP growth rate.

What’s the result? A far greater number of people will compete for increasingly less land over the long-term.

It’s not quite that simple though. Foreigners in the Philippines can own houses themselves, yet are barred from buying the land it sits on.

Thankfully, you have a few ways around this problem. Barriers to entry are a good thing if you’re willing to break through them.

Entry barriers keep other investors out of the market, at least for a time, which helps early movers take a position.

The most common route is to form a Philippine company. Businesses can own land if foreign ownership is below a 40% threshold. There’s methods of structuring the company to ensure you nonetheless keep control of the firm.

Other than that, land in the Philippines can be leased for up to a 50 year period if you’re a foreign investor. This is extendable for another 20 years.

 

Manila is becoming denser and more populous with each passing year – a clear driver of real estate demand and prices in the long-term.

 

#1: Cambodia

Cambodia is Southeast Asia’s second-fastest growing economy. Furthermore, they boast one of the region’s youngest workforces which should help maintain productivity and growth rates into the future.

But property in Cambodia isn’t a good investment just because of strong economic growth or favorable demographics. Places like the Philippines can claim similar factors as well.

Cambodia is a great idea since, on top of those things, it’s classified as a frontier market. The Philippines is a middle-income country, while Malaysia is already a developed nation by several measures.

Very few people have direct allocation to frontier markets. That’s mostly because it’s hard to invest in these high-growth nations, generally requiring travel and on-the-ground effort.

Investors who manage to invest in frontier markets get a unique mix of diversification, growth, and protection.

Why do frontier markets help diversification? Their growth is less reliant on other economies, so they’re often not hit as hard by financial crises.

Cambodia hasn’t had a recession for over 20 years. It skipped the Asian Financial Crisis of the 1990s, missed the tech-bubble of the early 2000s, and outgrew the Global Recession of 2008. This was all while averaging growth of over 7% per year.

Our world is now interconnected. McDonald’s, Dunkin’ Donuts, and similar brands are found almost anywhere. Malaysia and the Philippines aren’t exceptions.

As such, most countries need continued foreign investment from multinational firms. The entire world gets sick when the US or China sneezes. Yet frontier markets don’t always follow this rule.

You won’t find any McDonald’s or IKEA in Cambodia. Therefore, the country isn’t missing out on any investment when the global economy turns sour and these companies stop expanding for a few years.

Also, Cambodia uses the US Dollar as its primary transactional currency. We aren’t huge fans of the greenback here at InvestAsian. Nonetheless, it remains the world’s reserve currency without a viable replacement right now.

The greenback is a currency pair in 90% of all transactions, remains more stable than other currencies in the region such as the Indonesian Rupiah or Vietnamese Dong.

 

Disagree Over the Best Countries to Buy Real Estate?

The three property markets listed above are, in no particular order, what we consider to be the best countries to buy real estate in Asia.

Of course, it’s difficult to predict whether any country’s property values will appreciate in advance. We take positive demographic trends very seriously in this regard though, since they naturally drive demand and are difficult to change once set in motion.

Central banks will change interest rates on little notice, while credit issues can become apparent overnight.

However, a nation’s low-average age, productive workforce, and mass migration from rural areas into cities are all a multi-decade, ongoing process.

We should note that almost anywhere in Asia enjoys superior growth prospects when compared to Canada, the United States, Australia, or most other western economies.

You might disagree about the top places to purchase real estate – and perhaps even have your own ranking. But hopefully we both agree that buying property in stable, fast-growing countries is a smart idea.

 

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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 Southeast Asia. Reid manages the world's first frontier market real estate fund and has been featured in publications such as Forbes, Property Report, South China Morning Post, and Seeking Alpha. You can learn more about him here.

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