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Business trends

Developers race to house Southeast Asian middle class

Financing and rising incomes have put homes within reach for a growing population

Myanmar is building more public housing to address shortages linked to urbanization. (Photo by Yuichi Nitta)

YANGON/MANILA -- Property developers are charging into the market for affordable housing in Southeast Asia, seeking to profit as rising incomes make homeowners of the middle class.

In the Philippine province of Cavite, a commuter region serving the capital of Manila, a joint venture by Philippine developer Century Properties Group and Japanese trading house Mitsubishi Corp. is hard at work on a new development catering to first-time homebuyers. The project's 3,000 or so units start at just 1.2 million pesos (around $23,000), and the 1,000 or so units already on offer have nearly sold out.

The large scope of the development helps keep costs low. But plenty of effort has gone into ensuring that no corners are cut. Major Philippine builder Megawide Construction has established a temporary factory for concrete components at the construction site, helping maintain a certain level of quality and uniformity, in contrast to the hand-built walls common in other low-cost housing in the Philippines. The project also gives special attention to common space and landscaping, elements that tend to fall by the wayside in other developments in the country.

Mitsubishi has previously worked with the Ayala conglomerate on high-end condominiums in Manila selling for between 4 million pesos and 35 million pesos. The Japanese company says it now plans to ramp up development of housing for the growing middle class in several Southeast Asian nations, such as the Philippines and Indonesia.

SM Prime Holdings, another top Philippine developer, has similar ambitions, aiming to complete a roughly 3,000-unit affordable housing development in the province of Pampanga, north of Manila, by 2020. The development's website targets first-time homeowners, noting that buyers can use 30-year public home loans to finance their purchases.

In Indonesia, Lippo Group looks to spend some 278 trillion rupiah ($20.5 billion) turning an area on the outskirts of Jakarta into a new industrial city. It has already sold more than 100,000 homes in the area, priced on the order of $10,000 to $50,000. Previous developments in the country have largely focused on the higher end, including one involving Sumitomo Forestry featuring homes for around $188,000 and up.

This midrange development boom is made possible by rising incomes across Southeast Asia. When a developing country's per-capita gross domestic product tops $3,000, demand for such items as automobiles and appliances tends to skyrocket. The population in this region with annual income of $3,500 or more is set to climb roughly 40% between 2017 and 2022, from 153 million people to 220 million, according to research firm Euromonitor. In Indonesia, the Philippines and Vietnam, this growth is poised to top 50% and is expected to create massive demand for residential property.

Developers' interest extends even beyond these relatively wealthy regional population centers to Myanmar, where incomes are at the lowest levels in Southeast Asia. Japanese homebuilders including Sumitomo Forestry and Daiwa House Industry plan to build two-story multifamily model housing in Yangon, the nation's largest city, by the end of the year. The reinforced-concrete structure is well-insulated against the tropical heat and is resistant to earthquakes, features the developers hope will help draw customers as demand builds.

Yet while a simplified design and the use of local contractors and materials have helped keep the cost of building the roughly 70-sq.-meter home to around $28,000 -- around a fifth of what it would take in Japan -- this is still more than many working-class residents can afford.

Other Southeast Asian nations are stepping in to lower the financial barriers involved in homeownership, often as a means of resolving housing shortages linked to rapid urbanization. Indonesia provides loan assistance for home purchases of around $10,000, while Vietnam is weighing policies that would discourage investment in high-end developments and push companies to build more affordable housing. Myanmar is working to supply more public housing.

That mortgages are now available to the middle class is already making home purchases easier. Outstanding home loans in the Philippines came to 573.9 billion pesos in 2017, more than double 2012 levels. Indonesia's home lending rose 75% to 422 trillion rupiah.

Yet lenders often have trouble assessing would-be borrowers' credit, as many in Southeast Asia have unstable incomes or lack bank accounts. Alternative measures of creditworthiness are now being explored to bring more people into the financial system. Lippo and leasing company Tokyo Century are developing a way to determine how much a person can repay, based on past electronic payments.

Local financial institutions may also be unaccustomed to dealing with mortgage loans. The Japan Housing Finance Agency is training workers from Myanmar's Construction and Housing Development Bank in how to screen potential borrowers, making the bank's semipublic loans easier to access.

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