How real estate will drive integration in ASEAN

The 10 countries comprising the Association of South East Asian Nations (ASEAN) – established in 1967 – represent a myriad of economies, cultures, languages and governments. Levels of development and globalization across ASEAN differ dramatically and the diversity presents a challenge to achieving effective economic relations, growth and sustainability. In 2007, ASEAN leaders took up the challenge and agreed on a regional Economic Blueprint – a roadmap to integrate the 10 economies into a single market with a shared production base.

Recognizing the benefits that a common economic system would bring its members, ASEAN leaders are set to establish an integrated ASEAN Economic Community (AEC) by 2015. If successfully implemented, the AEC will offer businesses unrestricted access to a unified market of 600 million people, 8% of the world’s population, spread across nearly 4.5 million sq km. ASEAN real estate markets play a critical role in supporting this integration through development of and adjustments to regional infrastructure such as air and sea ports, rail networks and roads, as well as through advising on the growth of urban development and facilitating investment.

The AEC’s goal to increase accessibility to a skilled workforce across the region will encourage the exchange of best-practices and consequently support modernization and urban development. Rising land prices and tightening space can spur innovation in more established economies, drive greater efficiency in construction and sourcing of local labour and expertise to support the projects, thereby boosting local economies and creating jobs.

Successful integration and creation of a single production base will eliminate trade and labour tariffs, which will in turn fuel overall economic growth and lead to higher levels of disposable income, changing consumption patterns and greater demand for manufacturing and services. We can already see this happening, particularly in Indonesia, where the retail market is being transformed by higher-income consumers demanding a more lifestyle-centric shopping experience.

The benefits of the AEC will also be felt in real estate markets. As businesses and investors across South-East Asia look for opportunities to maximize profits while reducing outlays, real estate markets offering cost-effective solutions will attract less complex industries, drawing them away from more competitive cities and countries. Recent real estate trend research shows industrial production shifting from China to the emerging markets of Myanmar, Vietnam and Cambodia, whereas some businesses in Singapore have started outsourcing backroom functions to the Philippines. This will drive higher-cost regions, such as Malaysia, Thailand and Singapore, to adapt their industrial assets to focus on providing higher value-added products and services while the new industrial estates –  such as Myanmar, Vietnam and Cambodia – will support lower-end production. As more manufacturers relocate to South-East Asia, demand and competition for industrial and logistic properties will increase.

As liquidity rises in the ASEAN region, investor appetite will grow, including in real estate markets where the level of investment activity is expected to intensify in these emerging economies. As regulatory barriers are removed, we will witness capital volume flow to ASEAN markets, driving investment and supporting the overall goal of integration by 2015.

Author: Christopher Fossick, Managing Director Singapore and South East Asia, Jones Lang LaSalle 

Image: Labourers works on a construction site in Myanmar REUTERS/Minzayar