At the end of every calendar year, I purchase a publication which predicts economic trends for the following year, the normally very serious authors allowing themselves free reign to speculate and move away from their normal system of analyzing the immediate past; the present and very near future. I believe it is sometimes beneficial to think beyond current market trends and the numerous ‘bell curves’ of growth and development, and think of the more unique and perhaps unexpected changes that might come about on a macro basis in the future. This will be applied to the Real Estate sector in this article and in the middle of the year as opposed to at the end of it, simply because I think there is no time like the present.
With the so far silent and relatively muted approach of the Asian Economic Community (“AEC”), I believe it is time for the Asia-wide property industry and all those interested in it to reflect and prepare for potential changes, and even adjust existing business models or create new business models to accommodate the change. The volume is increasing slowly in relation to the reporting of changes, which will become a reality in our region.
AEC – A Very Brief Overview
For those of us not up to speed on the AEC, a very brief summary:
- The Association of South East Asian Nations (ASEAN) comprises Brunei Darussalam; Cambodia; Indonesia; Laos PDR; Malaysia; Myanmar; Phillipines; Singapore; Viet Nam and Thailand
- A summary entitled ‘ASEAN ECONOMIC COMMUNITY BLUEPRINT’ is available for download on the ASEAN website at www.aseansec.org/5187-10.pdf and this provides a good overview of the goals of the ASEAN in relation to the AEC. It also states the goals of implementation by 2015.
- The ASEAN summarized the AEC by stating that the goal is to ‘transform ASEAN into a single market and production base that is highly competitive and fully integrated into the global community by 2012’. Adherence to ‘multi-lateral’ rules is given weight, as are ‘rules based systems for compliance and implementation of economic commitments’. The ASEAN very strongly and noticeably dis-associates itself from comparisons with the European Union, but nevertheless mentions that with ‘The rise of emerging economies, particularly China and India, has reinforced ASEAN’s determination to create a stronger, more united and cohesive ASEAN for sustainable growth.” so, regardless of the rejection of comparison’s with the EU, there are many similarities from the reason for being; to the principles and potential effects on business and trade.
Why and How will Increased Economic Integration; and Trade – affect Real Estate?
Rather than list all of the minutia of the changes proposed and due to be implemented in the AEC, I think it would be more interesting, albeit more speculative, to take a few general examples of changes, and explore the possibilities of the affects on the real estate sectors:
Free Flow of Goods
This will certainly create a shift in the key distribution centres; regional operating headquarters and will significantly impact real estate infrastructure at key transport hubs facilitating the free flow of goods. Whilst known trade and supply routes are mature, a complete shift in the dimensions of how goods are moved will inevitably create change in real estate development. To take one micro-example – a company supplying goods through Trade Route A, may switch to Trade Route B when restrictions are lifted and distribution rules harmonized. Upon switching, the support and distribution centres for Trade Route B are created, therefore changing real estate patterns along Trade Route B. To further emphasise the reality of this possibility – ‘Customs Integration’ is also a key objective of AEC by 2015 brought forward from 2020, which will impact further on the flow of goods, and distribution points for such goods.
Free Flow of Services
As an owner of a company that provides legal services, this concept is close to my heart in terms of importance and significance for myself, my firm but also for the region in which we operate. Legal services has long been a restricted, difficult profession to operate in across jurisdictions, and I look forward to the time when competition between lawyers, regardless of nationality and location can be improved in a regulated but fairer environment.
This set of changes applies not just to legal services, but to ‘4 priority services sectors: air transport; e-ASEAN; healthcare and tourism – but also other services by 2015. Imagine the current Central Business District formulas – Hong Kong and Singapore currently hold top position at the financial centre hierarchy – and the real estate market connected to that position has very obvious benefits. These patterns will certainly change, as the flow of services changes leading up to and post 2015. Of course, not all the changes will happen instantly, or on time. Surely there will be legal disputes relating to the way countries implement the rules, and then battles based on ‘sovereignty’ and ‘national security’. For fear of upsetting the authors of the Blueprint on the AEC – it is all too a familiar story, looking at the EU as a direct comparison.
So, plans for projects to renovate Central Business Districts, new projects on better commuting routes; new hospitals; different numbers of tourists spread across the ASEAN countries and the effect on building of hotels – excitement, and change, awaits.
Free Flow of Skilled Labour
I picked this specific topic out of many other planned changes as I believe this to be one of the more significant and immediately visible policies to shape future real estate patterns. Freer flow of labour can also radically change where executives and professionals live and work; where labour for construction project are based; where marketing teams for real estate projects are situated; and will also affect prices of real estate once the movement of labour has an impact on different jurisdictions. To take a topical example, Au Saan Suu Kyi was reported as warning Thailand’s Deputy Prime Minister that if Thailand doesn’t take care of immigrants from Myanmar, she will bring them all back to Myanmar. The affect this would have on the availability of labour and cost of construction would be significant indeed. Although this is of course a political reference, the reality is that as free flow of skilled labour changes occur within the AEC, combined with the current rate of change in Myanmar, there will certainly be an effect on construction relying upon labour. ‘Skilled labour’ has also been a traditionally sticky term to define, which adds complications to the way changes might manifest themselves.
This means that sales prices in various jurisdictions will be affected; that mobilization intra-ASEAN of real estate and infrastructure projects should be more feasible, quality of project will be enhanced by a greater sharing of technology and advances in sustainable development; and new residential areas will flourish to cope with the changes in the movement of skilled labour forces. This is quite a rosy and positive picture of the possible changes that might take place, but optimism is best when the actual results are as yet unknown.
Summary
The above examples are inadequate in isolation to cover the true scope of change that will take place in the ASEAN real estate sector due to the AEC including agriculture activity changes, infrastructure development co-operation; mining co-operation; transport co-operation and a host of implementation mechanisms. If you look at the AEC Blueprint, there are countless other policies that will create large opportunities for investors, governments and corporations to ensure that they can develop and profit from development. If the ASEAN is skilled enough to avoid the issues, which have and continue to hamper the EU, then the ASEAN will accelerate the growth in competitive industries; and create more competition in stagnant industries through co-ordinated planning and development. Although there are only so many generalisations regarding potential speculative changes that can be made in relation to proposals for new policies, it is clear that the clock is ticking towards 2015, and will take many of us in the real estate sector by surprise when we start to see the effects of changes on our industry.
This article was written by Desmond Hughes, and was published in Property Report – South East Asia.
