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Real Estate

Japanese developers fuel Southeast Asia's luxury condo boom

Market of 600 million consumers draw builders in search of growth

Japanese condominium developers are active across cities in Southeast Asia such as Bangkok, where rising incomes are fueling demand for luxury housing.   © Reuters

MANILA/TOKYO -- Japanese real estate developers and homebuilders are tapping into growing demand for luxury condominiums in Southeast Asia, a market of 600 million increasingly wealthy consumers.

Japanese companies have built 30,000 residential units in the region in the past five years and are planning to develop around 80,000 more in the next five years, according to Nikkei's calculations.

In addition to healthy economic growth in the region, which is lifting demand for high-end housing, buyers' similarities to Japanese make the market attractive for Japanese players. Many of the same design principles and specifications Japanese condo developers use at home also work well in Southeast Asia.

After fielding more than 100 inquiries, Nomura Real Estate Development late last month opened a showroom for a condominium complex in Manila. Keys are to be handed over in 2023, according to the company.

Nomura Real Estate has teamed up with Isetan Mitsukoshi Holdings, a Japanese department store operator, and local developer Federal Land, a subsidiary of GT Capital Holdings, to build a housing and shopping complex with four high-rise condo buildings in a newly developed residential area in a Manila suburb.

"Demand is outpacing supply in the Manila housing market because of the growing ranks of middle-class consumers," said a Nomura Real Estate official.

The housing and shopping complex is just one of the many upmarket condo projects Japanese builders are engaged in in Southeast Asia.

Naoki Nishioka, a senior executive officer at homebuilder Daiwa House Industry, said local customers appreciate housing fixtures and features designed to meet Japanese quality standards, such as sophisticated wet areas -- bathrooms, kitchens and the like. Daiwa House is putting up a 2,300-unit condominium complex in Ho Chi Minh City, together with Nomura Real Estate.

The units, which are being offered in three batches, are selling well. Last year, the first 320 units sold out in three hours, drawing around 1,000 potential buyers. All the units put on the market so far were sold within a day. "We seldom see such quick condo sales in Japan these days," said Nishioka.

The high-end complex has a private gym and a large swimming pool. With an average area of 100 sq. meters, units start at around $260,000. Typical buyers are well-to-do business owners and corporate executives in their 40s and 50s with an annual income of over $30,000. They generally pay in cash.

Japanese companies' push into Southeast Asia's housing market began in the early 2010s. Big developers such as Mitsui Fudosan and Mitsubishi Estate blazed a trail with condo projects in Thailand and Singapore, where urbanization started early. Others soon followed. Among them, such smaller developers as Nomura and Tokyo Tatemono, as well as the real estate units of railway operators and trading houses.

They have since expanded into neighboring countries, such as Vietnam and the Philippines, as stiffer competition and rising land prices have made it more difficult to buy land and sell condos in Thailand.

Indonesia, whose economy is expanding steadily, has also drawn many Japanese condo builders. Tokyu Land plans to build more than 4,000 units in the country in the coming years. The company is developing a luxury condominium complex under its Branz brand in southern Jakarta.

Tokyu has chosen a Japanese construction company instead of a local builder to ensure quality. Tokyu is also strictly overseeing the construction process to reassure customers, and it plans to offer meticulous Japanese-style property maintenance and management services.

The posh complex features electronic locks and water purifiers. Despite price tags of around $350,000 for a 120-sq.-meter unit, 70% of the units have already been sold.

A big contributor to the luxury condo boom in Southeast Asia is a shift in preferences among wealthy consumers from suburban houses in favor of condos in city centers, according to Daisuke Fukushima, managing director at Nomura Securities. "There is a shortage of high-quality condos" in the region, he said.

Local developers are also willing to work with Japanese players, which have the expertise and access to finance needed to develop upmarket properties, according to Mitsubishi Estate.

Since Southeast Asian consumers have similarities to Japanese in terms of lifestyle and physical characteristics, Japanese developers can apply the specifications used in Japan to local properties with just a few adjustments, said a Mitsui Fudosan official.

Japanese developers are focusing on the higher end of the market, with some offering units priced above $880,000. Tokyo Tatemono is building a 24-story luxury condo in a well-off Jakarta neighborhood. When it is completed in 2021, 250-sq.-meter units will go for $1.8 million to $2.6 million.

Nomura Securities' Fukushima, however, sees potential trouble ahead for Japanese condo developers. "There is already a sense of oversupply in Bangkok," he said. With condo prices surging in wider areas, "demand could crater if prices rise above the levels of local consumers' purchasing power," he warned.

Another wild card is demand from Chinese investors. Many luxury condos in the region have been bought by Chinese speculators. The Chinese government's effort to restrict capital outflows could stifle demand from that quarter. Japanese developers should closely watch trends among Chinese investors, Fukushima said.

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