Property Life Issue 14 & Investment Life Issue 03

ASIA’S NO. 1 PROPERTY & LIFESTYLE GUIDE • ISSUE 14

GAMBLING ON SOUTHEAST ASIA Is property near casinos a good bet?

EVERYTHING YOU NEED TO KNOW ABOUT

METRO MANILA The neighbourhoods, prices, investment climate and more

THE INS AND OUTS OF

EMERGING MARKETS

Buying in Myanmar, Vietnam, Cambodia and Laos

THE HOTTEST NEW

SEASIDE INVESTMENT LOCALE

(It's not what you think)

ISSN 2251-3949

9 772251 394009

14

S$7.50 RM20 US$5.95 £4 €4.50 HK50 PHP260

PLUS: Trends that will affect the U.S. market in 2015

ISSUE 14 INSIDE SCOOP

9 UK SPOTLIGHT

The rebirth of the British seaside: England’s coast may be the next new hotspot for buyers.

12 U.S. SPOTLIGHT

10 trends that will impact the U.S. property market in 2015

16 PROPERTY SPOTLIGHT

A royal address in Iskandar

18 IF YOU’RE THINKING OF BUYING IN WEST LONDON… …consider East London

20

WHAT IT COSTS… What you’ll pay for a room with a view around Southeast Asia

23

BY THE NUMBERS 23 Bangkok’s condominium market 24 Mansion tax in the UK 27 Philippines facts

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FEATURES

29 EMERGING MARKETS: LOOKING FOR THE NEXT BIG THING

30 Vietnam: Foreign ownership restrictions have been relaxed, but how soon will foreigners get in on the action?

33 Myanmar: The country’s herky-jerky transition is far from complete.

29

36 Laos: It may be ‘awakening to development’, but a property surge isn’t expected any time soon.

39 Cambodia: The price is right in Phnom Penh.

43 BETTING ON SOUTHEAST ASIA

43 Games of chance: Is property near casinos and integrated resorts a good bet?

48 When the sleeping dragon awakes: China’s impact on gaming and property throughout Southeast Asia 49 Vegas vs. Macau: How do the world’s biggest casinoresort destinations stack up in the property market?

52 Gambling restrictions: Who’s in, who’s out in Southeast Asia’s casinos?

54 GUIDE TO METRO MANILA

43

54 The changing face of Metro Manila: Most signs point, but concerns over speculation give some investors pause.

58 Understanding Metro Manila: A guide to the best neighbourhoods 60 Perfect storm: The impact of natural disasters in the Philippines

65 INVESTMENT LIFE BONUS ISSUE A special issue of Investment Life magazine

REGULARS

64 HOT PROPERTY

A home made of shipping containers in Costa Rica

54

7 EDITOR'S LETTER

NOTE Property investors are a savvy lot. With an ear to the ground and an eye on horizon, you’re always looking for promising new ways to grow your money.

This issue of Property Life is—as always—filled with information about how to do just that. We delve into Southeast Asia’s underdeveloped markets of Vietnam, Cambodia, Myanmar and Laos (p29), and examine risks and opportunities of investing near some of the many casinos that are popping up around the region, from Manila to Macau (p49). We also give you the inside scoop on up-and-coming investment property spots in the UK—from seaside towns (p9) to neighbourhoods in East London (p18), and brief you on the trends that will affect the U.S. market in the year to come (p12). And since property is just one part of your portfolio, we’re closing 2014 with by including a very special mini-issue of Investment Life in the back of the magazine— consider it our festive season gift to you!

On a more personal note, I’m thrilled to be beginning 2015 with Panashco Media. My goal as editorin-chief is to provide you with the most relevant, informative, engaging information you need to make good decisions when buying property and alternative investments, and I would love to hear your comments and suggestions about how to make our magazines, websites and apps even better.

Here’s to a prosperous 2015!

Becky Ellis EDITOR-IN-CHIEF Panashco Media

THE EDITOR-IN-CHIEF

BECKY ELLIS becky@panashcomedia.com DEPUTY EDITOR

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All rights reserved.

IMPORTANT NOTE Content may only be reproduced with the expressed permission of Panashco Media Pte Ltd. For reprints please consult the advertising department.

While every care has been taken in the production of this publication, the publishers take no responsibility for any views expressed, errors, loss, or omissions that may occur.

Currencies quoted are for information purposes only and are accurate as we went to press.

Printed at Times Printers, Singapore.

MICA: 165/04/2012 • ISSN 2251-3949

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THE

REBIRTH OF THE

BRITISH SEASIDE Come rain or shine, England’s coast may be the next new hotspot for buyers.

BANKSY ARTWORK IN FOLKESTONE

© http://www.folkestonetouristinformation.co.uk

T

hink of a typical British seaside town: Brighton, Blackpool and Great Yarmouth may spring to mind, with their ice cream, fairground amusements and swathes of picturesque shorelines.

When new railway lines were built in the 19th century, seaside towns became popular with the masses who wanted to escape city smog and improve their health. As a response to this popularity, pleasure piers were built out to sea to ensure that visitors could reap the benefits of being close to the water even at low tide.

The 1970s saw the arrival of cheap air travel to Europe, and the appeal of the guaranteed sun-soaked beaches of Spain left British seaside town to spiral into decline, unable to compete due to the United Kingdom’s biggest vacation obstacle: unpredictable weather.

This created unemployment, an aging population and reliance on the tourist trade rather than long-term residents, the combination of which resulted in large seaside towns being at a disadvantage compared with the rest of the United Kingdom.

In recent years, the British government has invested significant funds to secure the future of seaside economies, transforming these ailing towns by creating jobs, supporting businesses and offering education to residents to improve their marketable skills.

Successful resorts such as St. Ives in the southwest of the country and Weymouth on the south coast have tackled the climate issue by building weather-independent attractions such as aquariums, galleries and cultural productions—a model that other deprived re-

I can only see things going from strength to strength with Folkestone having excellent investment potential. propertylifeasia.com

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sorts need to follow in order to succeed. And with holiday budgets tightened as a response to the global financial crisis, staycations in the United Kingdom became more frequent, injecting money into local economies.

Folkestone in Kent is a mere 21 miles from France and the United Kingdom’s closest point to France, which can easily be spotted on a clear day. A tourist hotspot a century ago, it lured visitors for a stroll down its prestigious promenade ‘The Leas’ and past elegant hotels with views across the channel, but Folkestone went into decline after being on the receiving end of battle warfare from two World Wars.

Today, Folkestone is reaping the benefits

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of regeneration thanks to funding from charitable and business entities such as the Creative Foundation and Roger De Haan Charitable Trust, set up by a local resident of the same name. The organisations are involved in a number of causes mainly in and around Folkestone, Hythe and the Romney Marsh, and projects span arts and culture, education, health and welfare, heritage matters and community and young people. Spokesperson Trevor Minter comments that much of the development over the last 10 years has been “‘placemaking’ to make Folkestone a better place to live, work and bring up children.”

Arts and culture is a major player in Folkestone’s rejuvenation. A Creative Quarter

has been established to regenerate the arts, creative industries and education. Shops, studios and flats have been restored by the Creative Foundation, which keeps rents low, and the area has seen a transformation: Folkestone experienced the biggest drop in unemployment and biggest number of start-up businesses in the United Kingdom, without resulting in gentrification, which typically pushes up prices and isolates those who initially popularised the area.

Celebrating its revival, Folkestone hosted its third Triennial from August through November of 2014, with visitors in excess of the 103,000 who attended in 2011. A major exhibition of contemporary art throughout the

BRIGHTON, ENGLAND The Brighton boardwalk at sunset

town drew prestigious artists such as Tracy Emins, the Beatle John Lennon’s widow Yoko Ono and this year German artist Michael Sailstorfer, who drew crowds by burying 30 gold bullion with a value of GBP 10,000 (USD 15,994) in the harbour to be searched and dug out when the sea retreated for his ‘Folkestone Digs’ project. This year, Banksy, a famous British graffiti artist of satirical street art, travelled to Folkestone to contribute.

Carrying out his work in disguise, Banksy is unknown but his artwork fetches hundreds of thousands of dollars and the arrival of his work has an immediate positive cultural impact to an area.

Poor infrastructure was another reason for the plight of seaside towns, but in 2009, the much-anticipated arrival of High Speed One (HS1) rail arrived in Folkestone. Travelling on the Eurostar route from London to Paris, the train reduced the Folkestone to London journey by 45 to 55 minutes, bringing Folkestone and the surrounding areas onto commuters’ radar. Local residential developer Anthony Ralph from TG Designer Homes has noticed that proximity to the HS1

is high on purchasers' requirements, and he has seen values increase by 25% in neighbouring Hythe in the last 18 months. Being the first developer in the area to sell off-plan, units are often sold before completion similar to the London market.

This sentiment is echoed by property agent Keith Rogans from C.R. Child & Partners, as up to 50% of new residential developments in the area have been sold to purchasers from London, the most popular sites being close to the sea or with a sea view. As buyers from outside the area have more sizeable budgets, prices of secondhand stock is being driven up, too. Rogans notes there is particular demand for luxury apartments and houses and, with a number of impending new launches, he said, “I can only see things going from strength to strength with our area having excellent investment potential.”

The revival of the British seaside is happening across the United Kingdom, not only within the Folkestone area. But Folkestone has not received the significant government funding which has benefitted other British seaside resorts. It is unique in that it is the

passion and vision of one man that has enabled the area to compete.

In short, the British seaside is one to watch. The average property price in Folkestone is GBP 300,000 (USD 478,000), less than London which is continuing to spiral upwards and out of reach for many. It is no wonder that people are searching outside of the capital for alternatives, and UK online property portal Rightmove forecasts that some commuter towns will see larger property value increases by 2019 than London.

Local resident Rachel Kowalski, who relocated with her husband from London to Folkestone in order to purchase their first family home, said “We realised that we could buy a large family home with sea views for the same price as a small flat in central London, but still have easy access to London on the high speed rail link. Folkestone is a great place to bring up children with the beach on our doorstep, and I particularly enjoy the unique pop-up shops, boutiques and restaurants in the Creative Quarter,” demonstrating that Folkestone is not just about property values, rather a quality of life.

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10

TRENDS

that will impact U.S. property in

2015

The Urban Land Institute’s Emerging Trends in Real Estate - United States and Canada 2015 report was released recently, offering a look at the factors most likely to affect the North American property market in 2015 and beyond.

Here we present the highlights of their top 10 trends that will affect the United States in 2015, along with the 20 topranked markets overall.

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10 TRENDS THAT WILL IMPACT U.S. PROPERTY IN 2015

U.S. MARKETS TO WATCH: OVERALL REAL ESTATE PROSPECTS 1

Houston, Texas

2

Austin, Texas

3

San Francisco, California

4

Denver, Colorado

5

Dallas / Fort Worth, Texas

6

Los Angeles, California

7

Charlotte, North Carolina

8

Seattle, Washington

9

Boston, Massachusetts

10

Raleigh-Durham, North Carolina

11

Atlanta, Georgia

12

Orange County, California

13

15

Nashville, Tennessee New York City (Manhattan), New York San Jose, California

16

Portland, Oregon

17

Oakland / East Bay, California

18

Chicago, Illinois

19

Miami, Florida

20

San Diego, California

14

A balance between non-stop, “24-hour cities” such as New York and sleepy “9to-5” markets where employees commute to the office and then home to the suburbs, “18-hour cities” have vibrant downtowns filled with shops, restaurants and entertainment plus walk-to-work housing that is close to employers in the knowledge and talent industries. Raleigh-Durham, North Carolina; Charlotte, North Carolina; Denver, Colorado; Portland, Oregon; and Atlanta, Georgia all rank in the reports' top ten list of emerging markets, in part due to their efforts to develop their city centres as live / work / play environments.

Millennials and baby boomers will influence the market for years—if not decades—to come. According to one institutional investor interviewed for the report, millennials are still “spooked by what happened to homeowning parents,” and likely to remain renters-bychoice, at least for the next six to seven years. Opinions differ about what the longer term future will hold, with one segment believing that this generation will head to the suburbs to raise families, while the other believes they will stay their current course. Regardless, the

THE 18-HOUR CITY

MILLENNIALS AND BABY BOOMERS DOMINATE THE MARKET

V

SOURCE: Emerging Trends in Real Estate - United States and Canada 2015 from the Urban Land Institute

HOUSTON, TEXAS

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10 TRENDS THAT WILL IMPACT U.S. PROPERTY IN 2015

consensus is that cohort is one to watch.

At the other end of the spectrum, 77 million baby boomers are still setting trends. Rather than settling down to retirement communities in the Sunbelt as was predicted 20 years ago, boomers have migrated to city centers and shied away from “stereotypical golf course retirement.” The report says that their experts “considered opportunities in health care properties and seniors’ housing ‘oversold’”, and instead notes that boomers’ priorities include owning property near children and grandchildren.

A COMING LABOUR SHORTAGE

Job growth is at the top of the list of most important issues for real estate, according to the ULI report, along with wage and income growth. It quotes an economic consultant as saying that the “labour force growth in the next few years will drop to the slowest growth rate since the end of WWI… Without a change in immigration policy, the U.S. will face a severe shortage of workers” across the entire occupational spectrum. Most industry experts interviewed agree that job growth is an important factor in driving real estate markets, from filling office buildings and housing and increasing spending at shopping malls, hotels and resorts.

A LOVE / HATE RELATIONSHIP WITH TECHNOLOGY

The rise of the ‘sharing’ economy—which includes companies such as AirBnB—has disrupted the taxi and hotel industries already, and the office market could be next in line as collaborative and shared office space increases. Other potentially impactful trends include “accelerated obsolescence,” with one CEO of a real estate services firm saying, “What does a world of driverless cars and drone deliveries mean for the acres of parking lots surrounding shopping malls? What happens to real estate brokerage in a world of big data?”

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HEIGHTENED EVENT RISK

While the spectrum of investors from ‘core’ to ‘opportunistic’ is well established, the report says that these distinctions will be heightened in 2015 as concerns about “black swan events” multiply. Accordingly, the trend is towards capital conservation, and offshore investors are considered the best prospects for increasing investment volume in the United States in the coming year.

MARKETS THAT FAVOUR “PURE PLAY” COMPANIES

Brand identity will be crucial for companies trying to capture capital, and the ULI’s experts say “the more ‘pure play’ the better.” “The recent spin-off activities in the retail, office and hospitality real estate investment trust (REIT) sectors sound a theme that will echo as a trend in 2015,” the report states.

IMPACT OF THE DEFINED CONTRIBUTION REAL ESTATE COUNCIL

The newly formed Defined Contribution Real Estate Council—established to “help plan sponsors and their participants achieve better investment outcomes through the use of institutional quality real estate”—will spawn new products directed to this capital source in the nearterm. The hundreds of billions of dollars of potential capital allocated to real estate has implications for pricing and “should also prompt a round of serious thinking about fiduciary responsibility in managing this money” in light of retirees’ need for capital conservation and liquidity. The report flags that this trend “could be huge.”

NEED FOR BETTER INFRASTRUCTURE

The foundation of our commerce is eroding, says the ULI’s report. Beyond bridges and roads, it cites decreased spending on

both public and private educational and health care facilities, and notes that the U.S. is not investing in the infrastructure that the country will need to compete in the future. “Infrastructure constraints causing congestion hobble the improvements technology can provide,” said one investor with logistics experience, adding that “the millennial generation is intolerant of congestion and delay—on highways and in transit.” “Real estate depends upon ease of commutation,” said a New York City broker who was also interviewed.

“Businesses are paying close attention to commutation patterns of employees…

Fundamentally, all businesses need talent [and customers] and you ‘solve back’ real estate from that.”

A RETURN TO ECONOMIC FUNDAMENTALS IN THE RESIDENTIAL SECTOR

There will be increasing confidence in the residential sector in 2015, as “housing seems to be putting the excesses of the bubble and the ensuing collapse behind it. With classic principles of supply and demand returning to drive the market, the housing market should anticipate moderate price increases, solidly based on buyers’ ability to pay… with minor ups and downs in the National Association of Reators’ existing home sales figures.”

REMAINING ON THE LOOKOUT FOR EXCESSIVE OPTIMISM

In spite of a generally positive outlook, there is caution about excessive optimism resulting from the upcycle. Those who forget the past are doomed to repeat it, and some interviewees wondered whether the industry will forget the “hard-learned lessons of the recent past.” Forty percent of survey respondents believe equity underwriting will be less rigorous in 2015 than in 2014, and slightly more believe that lenders will loosen up in the coming year, all at a time when Treasury rates will certainly rise and mortgage spreads are tight.

PROPERTY PROFILE

A royal address in

T

ISKANDAR

he Princess Cove on Tanjung Puteri, Johor Bahru is R&F Properties leading new mixed-use scheme covering 116 acres. The first phase of Princess Cove, due to be complete in 2017, consists of 3,224 units across seven blocks, where service and amenities are paramount. This HOPSCA (an acronym for hotels, offices, parking, shopping mall, convention centre and apartments) development will provide residents with more than just a place to live.

The units range from studios to four-bedrooms, and with 16 different layouts available with a range of generous sizes, there is a unit to fit all requirements. Facilities include an exclusive residents’ Skypark clubhouse with views over the straits, reading room, surau (prayer room), children’s playing area and café. Sport facilities include swimming pools, gymnasium, yoga room, billiards room, table tennis room, squash courts and jogging track, reinforcing that Princess Cove will provide more than just a place to live, but an enviable lifestyle.

In addition to its amenities, Princess Cove boasts an integrated security and safety management system for residents’ peace of mind.

Features include digital locks, an emergency call button linked to central security, separate distinct vehicular access for residents and private residents’ lift lobbies, to name but a few.

Princess Cove has been designed with residents’ ease in mind. By choosing this as your new address, not only will you live in comfort, but also it will enhance your quality of life.

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n i g n i y u b f go n i k n i h t e r ’ u If yo

‌ N O D N O L T S WE

consider

N O D N O L T S EA

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NEIGHBOURHOOD

BY VIRGINIA EWART-JAMES

R

enowned for its prestigious postcodes and its central location, Kensington and Chelsea still remain at the forefront for international investors wanting their own slice of London. A prime location that became popular in the 17th and 18th centuries due to its fresh air and space, Kensington and Chelsea attracted London folk wanting a home out of the hustle and bustle of the capital’s centre. Today, the area is as popular as ever and is teeming with restaurants, shops, drinking holes and schools, the combination of which has resulted in it becoming one of London’s most densely populated boroughs, despite it being the smallest borough in terms of land size. The result? Surging property prices due to demand, and scarce land to for development.

Head east and a different story is playing out. Approximately 7,000 residents call the City of London—a confusingly-named borough of London proper also called simply ‘the City’—their home, 80% fewer per square mile compared with Kensington and Chelsea, and with more attractive price tags: Property values range between GBP 8,000 and GBP 14,000 per square metre (USD 12,792 to USD 22,375) compared to Kensington and Chelsea’s values of between GBP 11,000 to GBP 32,000 per square metre (USD 17,589 to USD 51,160).

This is one contributing factor to the City’s current development transformation. Known as the ‘square mile’, the City is considered to be the global financial hub, however, the City Fringe – a half-mile fringe surrounding the City - is also home to creative industries, tech startups concentrated around Old Street labeled

as ‘Silicon Roundabout’, shops, restaurants and Shoreditch’s vibrant nightlife to service the 370,000 people working in the neighbourhood and those travelling in.

Once a ghost town at the weekend, the City and City Fringe are firmly marked on the map for residential investors. Its diverse caliber of buildings spans from protected historical buildings to shiny new skyscrapers, which are fast changing London’s low-rise skyline.

This range offers investors choice rather than being confined to the period buildings in Kensington and Chelsea. Previous industrial areas of Clerkenwell, Shoreditch, Old Street and Farringdon are home to warehouses aplenty, stylishly converted into Manhattanstyle apartments or office spaces. Victorian and Georgian properties offer character and charm, and new builds throughout the area boast residents’ facilities not always available in London’s period buildings.

Situated firmly in the public transport zone one, the City and City Fringe have in excess of ten underground stations spanning eight lines, seven mainline train stations and copious bus routes making it extremely well connected.

Additionally, Europe’s biggest infrastructure project is in full swing: Crossrail. Linking east to west London, this massive underground transport network will increase capacity by 10% and reduce journey time up to 25%. Travelling through the City and City Fringe, Crossrail is a huge game changer in the residential property market. Farringdon will become the busiest train station in the UK boasting direct links to three major airports: Heathrow, Gatwick and Luton. Considering how Londoners

rely on public transport daily, investors should take heed of this evolving transport network.

Aside from being a transport hub, the City and City Fringe play host to a number of attractions. The Barbican, a Brutalist-design residential housing estate built in the 1960s in an area devastated by World War II bombings, was built to create a utopian vision of the future.

Not necessarily easy on the eye, the Barbican certainly makes up for it with its offerings.

Home to restaurants, a supermarket, a school and church, the Barbican is also Europe’s largest multi-arts and conference venue presenting the most cutting edge art, theatre, music, dance, film and learning experiences. A Grade II listed protected building, the Barbican is a fine example of the diverse architecture in the area.

The food culture is flourishing in the City and City Fringe as well. Once just catering to businesses lunches, each week sees the arrival of restaurants from fine dining to pop-up concepts, catering to all tastes and ages. In addition to more affordable property, this diversity in culture, entertainment, working environments and property styles is what sets aside the City and the City Fringe apart from the rest of London. With the recent approval of 700 units on the Royal Mail site in Clerkenwell and more consented plans around Old Street, Shoreditch and Liverpool Street, the City and City Fringe will continue to draw people as different businesses sit side-by-side in harmony. It is no wonder that the areas are fast becoming a base for many Londoners seeking to enjoy the capital with the luxury of a short walk from their front door, and a popular investment destination for locals and foreigners alike.

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P

roperties with a view are always in demand. Whether it be a penthouse with panoramic city views, a rural retreat overlooking expanses of lush greenery or an aspect across the water, Asia offers some of the best sea views. But what will it cost you? These four-bedroom retreats from the region’s islands clock in at different price points, but all will whet your appetite.

ANDARA RESORT AND SPA VILLA, PHUKET, THAILAND USD 5,700,000 Own your own slice of the Andara Resort and Spa on the exclusive west coast of Phuket in Thailand. Set on a hill and overlooking the Andaman Sea, this villa has flexible living with four to five bedrooms, six bathrooms, private infinity swimming pool and ample entertaining space set over 1,698 square metres.

Additionally, being part of the Andara Resort and Spa provides access to the resort swimming pool, spa and concierge service maximising a luxurious lifestyle. cbre.co.th

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CEDAR DRIVE, REDHILL PENINSULA, HONG KONG USD 13,538,954 Overlooking Tai Tam Bay, it is easy to forget that you are on Hong Kong Island in this four-bedroom house, which boasts direct waterfront access. Refurbished to an exceptional standard, this property will make the ideal base for those wanting an urban/rural life balance with an expanse of both indoor and outdoor living space.

Facilities include swimming pool access, tennis court and children’s play area. habitat-property.com

ALILA VILLAS KOH RUSSEY, SIHANOUKVILLE, CAMBODIA USD 2,050,000

As Cambodia establishes itself as property hotspot, its relatively untouched coastline and islands offer spectacular views across the Gulf of Thailand. Cambodia’s first international branded resort island and residential development, Alila Resort on Koh Russey, will not fail to disappoint. Just 25 minutes by boat from Sihanoukville International Airport, when the resort opens at the end of 2015, it will offer a selection of one-, two- and four-bedroom pool villas are on offer complete with a range of prestigious resort facilities, turquoise waters and white sands. cbre.com.hk

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(US) The California Bureau of Real Estate has not examined this oering, including, but not limited to, the condiion of tle, the status of blanket liens on the project (if any), arrangements to assure project compleeon, escrow praccces, control over project management, racially discriminatory praccces (if any), terms, condiions, and price of the oer, control over annual assessment (if any), or the availability of water, services, uuliies, or improvements. It may be advisable for you to consult an aaorney or other knowledgeable professional who is familiar with real estate and development law in the country where this subdivision is situated.

(NON-US) No representaaon is being made herein. The parrculars, details and visuals shown herein are intended to give general idea of the project and as such are not to be relied upon as statements of fact. While such parrculars and details are based on present plans which have been prepared with utmost care and are given in good faith, interested parres are invited to verify their factual correctness and subsequent changes, if any.

The contents herein are subject to change without prior nooce and do not consstute part of an oer or contract. It may be advisable for you to consult an

BY THE NUMBERS

Thailand’s

condominium market There has been a continuous increase in condominium supply (and demand) in Bangkok since 2005, the result of a growing expatriate population, the local population buying pied-à-terres to be close to work and a change in living patterns as young professionals move from the family house before marriage. What factors in 2014 have affected the market and what will the future bring?

Thailand has been affected by political unrest in 2014. To date there has been an

8.7% decrease in tourism, a decline in exports which constitutes

60% of GDP, and the World Bank predicts slow growth in 2015 at

3.5%

New developments on the Chao Phraya River have been well received, as improved infrastructure has marked the riverside as a new condominium address.

New developments Icon Siam and Magnolias Riverside sold out quickly and achieved average prices of

THB

280,000 PER SQM.

(USD 8,531.59) however older developments have stagnated in price due to poor building management.

expatriates live in Bangkok, up from 64,729 at the beginning of 2013. Despite this increase yearon-year, the supply of serviced apartments (aimed for the expatriate market) has decreased yearly since 2009 as expatriates are opting for condominiums on the Sky Train BTS network instead.

6,000 UNITS

in Q4 2014 will be completed in time according Colliers International the result of a lack of construction workers and lower take up rates. Many developers have moved launch dates to 2015, creating an 8% decrease in launches in Q3 2014 from Q2.

Colliers International estimates that total existing supply of Bangkok’s condominiums is

1,830

417,650

were launched in Q3 2014; 43% in the Sukhumvit area, 37% central Bangkok and 20% on the riverside

There was an

UNITS

74,610

Under 20% of the

UNITS

18.9%

increase in Bangkok’s land prices in the first half of 2014, the fastest increase in the Asia Pacific region according to Knight Frank. A lack of freehold land pushes prices, however with the expansion of the mass transit network system, prices could stabilise as commuting into the city is eased.

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BY THE NUMBERS

MANSION

Types of properties expected to be affected by mansion tax:

TAX DETACHED

The proposal of mansion tax is a hot topic in the UK as the next general election nears in May 2015 and politicians debate its implementation.

An annual levy on properties over a certain value has been an ongoing discussion for the past five years, but what are the facts?

TERRACED

The tax is expected to affect approximately 100,000 properties,

Due to increasing property values, a mansion tax is proposed for properties valued in excess of GBP

of which are in London or the Southeast of England.

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MILLION

Mansion tax is estimated to raise GBP

MILLION BILLION

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In 2012, stamp duty for properties in excess of GBP

In 2009, Vince Cable member of the Liberal Democrat party, introduced the notion of a mansion tax.

Applicable to properties valued in excess of GBP

This amount is expected to most impact the market.

properties over this amount.

FLATS (condominiums)

was increased to 7% in order to generate more revenue from high-end property sales.

MILLION

Kensington and Chelsea in London have the highest concentration of GBP 2 million properties with

SEMI-DETACHED

annually for the public purse.

1% of the value over this amount would be collected annually.

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BY THE NUMBERS

the

PHILIPPINES With a population in excess of 100 million people, the Republic of the Philippines comprises thousands of islands, and is flush with both beaches and mountains. But what unique features set the Philippines apart from the rest of the region?

4

colours make up the Philippines’ flag. The flag design allows it to be flown with either side up: red on top represents that the Philippines are at war, and blue on top means it’s at peace.

1975

was the year Filipino Robert de Rosario made the karaoke machine. As Rosario patented it, he became the first patented producer of the karaoke machine despite a Japanese musician inventing it four years previously.

As of 27 July 2014, the Philippines is the

7th most populated country in Asia and 12th in the world, as it welcomed its 100-millionth citizen.

7,107 islands make up the Philippines, of which only 2,000 are inhabited.

488 OF THE 500

coral species known in the world can be found in the Philippines. Covering an area approximately 26,000 square kilometres, the coral is inhabited by over 900 fish species.

10

wellpreserved Japanese shipwrecks can be found in Coron Bay, Palawan. Sunk by an attack from the Americans during WWII, the fleet of Japanese ships was hiding in the bay and today they can be explored by all levels of divers.

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LOOKING FOR THE NEXT BIG THING

BY BECKY ELLIS

W

ho doesn’t want to get in on the ground floor of a great investment?

Portfolios of Asian investors heavily favour property whether for capital gains, rental yields or simply as a place to park capital. Thailand has been a darling of real estate investment in spite of political instability, but while Bangkok is still affordable relative to regional property powerhouses like Singapore and Hong Kong, it is no longer the bargain it once was.

Many investors are sniffing around less developed markets in search of the next big thing.

Four of Thailand’s neighbours—Cambodia,

Vietnam, Laos and Myanmar—may be emerging as strong options. In November 2014, Vietnam enacted a new law opening its property market to foreigners, while Cambodia passed its foreign ownership law in 2010. Myanmar has a draft law under consideration, and while Laos’ market is currently closed to outsiders, its government is expressing increasing interest in foreign investment.

While investing in emerging markets is frequently tricky—and financial due diligence and the services of qualified legal counsel are highly recommended—these markets are worth watching in the short- to medium-term.

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PROPERTY POSSIBILITIES IN VIETNAM Vietnam has finally eased its tight foreign ownership restrictions, but how soon will foreigners get in on the action?

BY VIRGINIA EWART-JAMES

W

hen Vietnam’s Fitch Rating was raised three levels in November, it left some potential property investors champing at the bit. The Fitch Rating—an economic indicator designated by the United States Securities and Exchange Commission—is a key measure of a country’s economic status, and was increased as Vietnam’s economy expanded 5.62% in the first nine months of 2014. As a result of the country’s improved macroeconomic stability and spurred on by the recent relaxing of foreigner ownership restrictions, the residential property market is gaining momentum.

Vietnam’s tight foreign ownership restrictions were eased on 25 November, and the

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SAIGON SKYLINE Ho Chi Minh City at night, with a view of the 35-storey Vietcombank Tower, the tallest building on Me Linh Square.

door has finally opened for foreign investors looking to profit on the market. Troy Griffiths, managing director at Savills Vietnam, said, “this highly anticipated and long discussed amendment has had support from all levels of the government and throughout the property industry.”

The amended law permits certain foreigners to own a leasehold title for condominiums, villas and townhouses for 50 years.

Foreign buyers must have a valid passport; permanent residency, temporary residency or a document permitting residency for at least 12 months; and must meet one of five further requirements such has having a valid work permit, being married to a Vietnamese citizen or being on the board of a company currently operating in Vietnam. Foreigners can purchase a maximum of 30% of a condominium building or up to 250 villas or townhouses. Most significantly for investors, the law permits foreign owners to sublet, and to purchase property with mortgages from banks in Vietnam. The law is a radical change from the current legislation that only allows foreigners who have invested significant sums

PROPERTY POSSIBILITIES IN VIETNAM

in the country or are married to Vietnamese citizens to purchase property.

Foreigners will still be restricted from owning land, and it is not yet clear whether titles will be granted for properties less than 500 square metres. The other catch to the law? If the property has not been sold upon expiry of the lease term, the property will be returned to the state.

To be enacted on 1 July 2015, this will be a real turning point for the residential market. “Real estate is in its infant stage,” said Matthew Powell, director at Savills Vietnam, “there is potential for development. Rental yields are very attractive compared to regional standards, and developers are being more and more professional which is attracting international buyers keen to invest.”

In spite of current limitations in the property market, foreign investment has played a major role in Vietnam’s improved outlook,

ON THE MOVE National Route 1A snakes through Ho Chi Minh City.

particularly in the manufacturing sector, which constitutes 70% of total foreign direct investment. It has been propelled by South Korea which has knocked Japan off the top spot as the industry’s biggest investor. Additionally, by the end of 2014, Vietnam is expected to be the leading Southeast Asian supplier for the US, exporting USD 29.4 billion of items including garments and textiles, seafood and exotic fruits, according to the American Chamber of Commerce. This 36-fold increase over the last 14 years clearly illustrates Vietnam’s stronger economic position despite China curbing its interests due to tensions around ownership of the South China Sea.

“[Vietnam has had] a second quarter of good data, the best it has been for 10 years, which has brought consumer confidence in both Ho Chi Minh City and Hanoi,” said Griffiths. “I hope it continues.”

Commercial real estate firm Cushman and Wakefield has already witnessed a shift in the origin of investors, with increased investment interest outside of Asia. A change from the norm, investment from Europe and America is predicted to increase further as free trade agreements are formalised through the TransPacific Partnership, which encompasses 12 countries in the region.

“Since Vietnam joined the World Trade Organisation in 2007, there has been a sharp increase in the number of international businesses entering Vietnam,” said Powell, noting that Vietnam’s expanding expatriate population with increasingly longer-term residents is a potential boost for the residential market.

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PROPERTY POSSIBILITIES IN VIETNAM

URBAN OASIS

The Saigon Notre-Dame Basilica is nestled into downtown Ho Chi Minh City.

Investment in Vietnam has increased from USD 169 million in 2010 to USD 4.45 billion in 2013.

Vietnam is the 12th largest electronics exporter in the world and has the fastest growing IT services sector.

Manufacturing in Vietnam has increased due to its proximity to China and the fact that it suffers fewer natural disasters than Indonesia or the Philippines.

Japanese companies have shifted their investment to Vietnam from Thailand and China due to its cheap labour and political stability. Companies include: Bridgestone (manufacturing auto parts): USD 650 million Ngi Son petrochemical oil refinery: USD 2.8 billion Panasonic Industrial: USD 175 million A survey in 2013 by the Japan External Trade Organisation found that 70% of the 435 Japanese companies based in Vietnam plan to expand.

A new factory opened in Hanoi manufacturing passenger doors for Boeing 777 under MHI Aerospace Vietnam Co. Ltd., a group company of Mitsubishi Heavy Industry Ltd. Microsoft expanded Nokia production in Vietnam after reducing production in Hungary, China and Mexico.

FOOD AND BEVERAGE OUTLETS Baskin Robbins recently opened its 20th outlet in HCMC and its first in Hanoi.

Starbucks has opened its eighth outlet in HCMC and its first outlet in Hanoi.

Café Bene's first outlet opened in HCMC in 2014.

RETAIL SHOPS Brooks Brothers: oldest men’s clothier chain in the US Prada Marks and Spencer Co-op Mart opened 2nd shop

NIKE • ERNST AND YOUNG • SONY • STARBUCKS • MAESRK LINES • SAMSUNG • INTEL • LG

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Jonathan Tizzard, national head of valuation and research at Cushman and Wakefield, concurs. “The free trade agreements will make Vietnam a very attractive destination for manufacture and there will be a knock-on demand for real estate.”

Experts believe there is the scope for foreign investors, but Vietnam’s weak legal system has previously affected confidence of potential buyers. Griffiths noted that a “more compelling title offer to foreigners [was] needed in order to attract them.” This sentiment is echoed by Tizzard who has seen many investors come to Vietnam but leave without purchasing property due to the complexities involved. However, with the new law, “foreigners now have an enforceable title, at the same time opening up a far deeper purchaser pool,” said Griffiths. “This will add greater liquidity to the residential market which is now showing signs of a modest recovery across the nation. Importantly the amendment helps Vietnam's property market become more competitive within the region.”

Previous housing amendments have proved highly beneficial. The implementation

of Decree 153 in 2009, which required developers to take purchasers’ initial payment only upon completion of the foundation of the condominium, had an immediate positive effect on the residential market. The previous structure enabled developers to commence building after payments were received, and often completion deadlines were ignored.

This more transparent approach was a step towards a more sophisticated market.

Once in place, the new law and the success of other industries, such as manufacturing, is expected to improve the economy further. However according to CBRE, the changes in the law will "help attract a strong foreign cash flow to the real estate market, but it [will] not serve as a major capital source for Vietnam” as property only constitutes 10% of foreign direct investment. In other words, Vietnam may not need more foreign investment in real estate in order to grow its economy. But assuming the country’s economy continues its upward trend, this market is one to watch: once the real estate market opens up to foreigners, it is likely to offer some excellent opportunities.

THE TWO-STEP

Myanmar’s herky-jerky transition is far from complete.

BY BECKY ELLIS

I

t’s been two steps forward, one step back for Myanmar. Since the elections of 2010 began paving the way for a liberal democracy and a mixed economy, multinational companies have been flocking to The Golden Land, eager to get in on the ground floor of the new Asian frontier. But both political and economic progress have slowed, privitisation efforts—such as the rollout of mobile phone networks—have hit serious snags and infrastructure challenges remain.

The situation looked different just one year ago. Land prices were skyrocketing, office rents had tripled as multinationals clamoured to set up operations and there was worldwide

SHWEDAGON PAGODA Known in English as the Golden Pagoda, the Shwedagon Pagoda dominates Yangon's skyline.

enthusiasm as many expected Myanmar to step into a new capitalist and democratic regime. So what happened?

“The political transition towards a democratic system has simply not happened at the speed or reach expected if you were optimistic about the reform process,” said Alistair D. B. Cook, PhD, a research fellow at Singapore’s

Centre for Non-Traditional Security Studies at S. Rajaratnam School of International Studies.

“Yes there is a constitutional government and a government that is pro-business,” said Cook, “however, after the by-elections in which Aung San Suu Kyi was elected to parliament, there hasn’t been any substantial progress on further reform of the political system. In fact, the military, who have guaranteed seats in parliament, recently ruled out constitutional changes before the next general election slated to be in 2015.” “[P]olitics and economics cannot be addressed in silos,” Cook continued. “Without a transparent and democratic system in place

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THE TWO-STEP

With a per capita GDP of USD 870 in 2013, Myanmar is one of the world’s poorest countries.

Top exports: Petroleum gas, rough wood, dried legumes, non-knit men’s coats and rubber In October 2014, Myanmar’s government invited nine international banks to begin limited commercial operations in the country: The Bank of Tokyo-Mitsubishi UFJ (Japan) Sumitomo Mitsui Banking Corporation (Japan)

APARTMENTS IN MYANMAR While locals live in apartments like those pictured above, Myanmar's cities are short on housing that caters to the growing expat population.

Mizuho Bank (Japan) Australia and New Zealand Banking Group Bangkok Bank Public Company (Thailand) Industrial & Commercial Bank of China Malayan Banking Berhad (Malaysia) United Overseas Bank Limited (Singapore) Overseas-Chinese Banking Corporation

OMNICOM GROUP • COCA-COLA NISSAN • UNILEVER • EXXON

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with a functioning rule-of-law, business investments will be inherently risky.”

By most accounts, after an initial surge of enthusiasm around reforms, the government lost its footing. It achieved its goals of worldwide acceptance from the global community and rolled-back sanctions more quickly than expected, but had no plan in place for next steps. Even government officials acknowledge a lack of cohesive goals, organization structure and transparency.

“Official information and data on what has been privatised, how and why it was done and outcomes… are hard to come by,” said U Myint, the president’s chief economic adviser at a commerce ministry seminar in October. “I know more about what is going on between Brad Pitt and [Angelina] Jolie than what is going on in our privitisation process.”

With lack of transparency and increasing unease within the government’s own ranks, once-eager investors have become wary.

“A lot of businesses are looking at Myanmar, businesses that are based in Singapore and Bangkok, but they’re waiting,” said Richard Emerson, country manager of Savills, Myanmar. “The election of next year will be key, so people are taking a ‘wait and see’ approach over the next 12 months.”

In spite of stalled progress, the property market retains momentum from the country’s halcyon days. Property values tripled in the last few years as demand dramatically outpaced supply. In 2013, Yangon was cited as one of the most expensive places in Southeast Asia for prime office space at USD 87 per square metre, 21% higher than Singapore, and residential prices have soared as well.

Foreign investors have had limited ability to cash in on the bounty, however, since they cannot buy property in any shape or form. While a foreign investment law enacted in 2012 permits joint ventures with Myanmar citizens, Emerson has observed many would-be investors abandoning potential

THE TWO-STEP

projects because of the terms offered by their local counterparts, whose conditions for prices, share of profit and timeline for return on investment they find unacceptable.

“The residential property market [of Myanmar] is unusual… units being developed are not being designed to sell to the market in general,” said Emerson. “There’s a limited pool of very wealthy people who are buying solely for investment, to rent them out to foreigners.”

Developers have been quick to note supply-side problems, and a large influx of units is scheduled to become available in the next three to five years.

“There have been lots of launches in the last six months at higher end; better schemes

that are quite international—international design, international architecture and hopefully international construction standards—but it’s all pretty untested as few of them have been completed,” said Emerson.

A condominium law has been in draft form since 2012 and, if enacted, it would allow foreigners to own up to 40% of units above the sixth floor of developments built on freehold land—which would count out many recently launched projects—but it is not expected to pass any time soon. By the time it does, the playing field may have shifted. With a large supply of property coming on line and an uncertain political and economic climate, it’s impossible to predict how deep the demand for

property will be.

“It could go one of two ways,” said Emerson, “take up could be reasonably stable, or there could be too much space and prices could fall… You have to acknowledge that prices are high on a regional comparison basis [and] expect those rates to stabilise and come into alignment with other places in the region.”

The country’s overall uncertainty is mirrored in its property markets.

“If Myanmar doesn’t sort out the rule of law and a free and fair democratic system and produce meaningful national reconciliation then we will simply see a continuation of the status quo,” said Cook. “What you see is what you get.”

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THE SLEEPING STATE

Laos may be ‘awakening to development,’ but a property surge isn’t expected any time soon.

BY VIRGINIA EWART-JAMES

L

ike the of pace of life, property development in the landlocked country of Laos—officially Lao People’s Democratic Republic—is slow. Despite a plethora of land in the capital, Vientiane, there are no condominiums, and many Vientiane investors cross the border to Thailand to purchase condominiums in Udon Thani and Nong Khai. Serviced apartments, villas and townhouses are available to rent (the latter two are occupied mainly

by Laos' government officials and businesspeople from China, Vietnam and Thailand), but tight planning controls, restrictions on building heights and competition from nearby metropolises such as Bangkok mean that,

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THAI-LAOS FRIENDSHIP BRIDGE Opened in 1994, the bridge connects the Vientiane prefecture in Laos with Nong Khai in Thailand.

according to Colliers International, although “the real estate market in Vientiane is awakening, the relaxed charm of this city will remain for some time to come.”

Ranked by the United Nations as a ‘Least Developed Country’—the lowest rank of socioeconomic development—Laos sits between China, Vietnam, and Thailand, Laos’ three big investors who all endeavor to cash in on the country’s natural resources, as well

as Myanmar and Cambodia. A communist country reliant on foreign investment in its chief industries, mining and energy, in 1986, the ‘New Economic Mechanism’—a range of reforms that encouraged private sector activity—was implemented as a consequence of the failed Soviet-style state-run economy, which hindered the country’s economic development. Once opened to trade and investment opportunities, the economy lurched forward, however the 1997 Asian financial crisis took its toll on the kip with a staggering 87% fall over a two-year period.

Tighter fiscal controls and a better-managed economy followed.

In 2011, Laos dipped into capitalism

THE SLEEPING STATE

with the opening of its own stock market, and became a member of the World Trade Organisation in February 2013 after 15 years of lengthy negotiations. Recently the World Bank has raised Laos seven places for ease of doing business, which “reflects measures to strengthen legal rights of borrowers and lenders by establishing a collateral registry and to strengthen protections of minority investors,” but it is still considerably further down the ranks than its neighbours. Today, exporting clothing, timber products, coffee, gold and electricity, Laos has enjoyed a steady 8% yearly GDP increase over the last decade, and is vying to become ‘the battery of Asia’ by quadrupling its hydropower supply by 2020.

As economies grow, the property market tends to follow suit, but Laos’ communist ethos could make it the exception due to strict property ownership laws. Under the Land Law, land is owned by the national community, which is allocated by the government dependent on national interests. Lao citizens are granted 30-year ‘land use rights’, similar to land ownership, but with the provision the Lao state may reclaim the land at any time for the best interest of the country. Foreigners who invest a minimum of USD 500,000 in the country can lease the land from a Lao citizen or the state for 50 or 75 years, and can own the building that sits on the land irrespective of not owning the land.

As a result there is little property transaction history in Vientiane. Surachet Kongcheep, associate director from Col-

RECLINING BUDDHA A giant reclining Buddha at Xiang Khouan, the "Buddha Park" near Vientiane.

If foreign ownership restrictions are relaxed, it’s going to be like ‘selling the country.' liers International, says there has been little change in the land prices around Patouxay (the CBD of Vientiane), around 10% to 15% in the last few years achieving USD 2,500 per square metre. Rents range from USD 7001,200 per month for one to three bedrooms with one beds most in demand, but with a rising number of expatriates in Vientiane, prices

have increased due to a shortage of housing.

According to local agency J&C Expat Services, “In reaction to the new demand, many landlords have begun building houses that are bigger and more expensive, often above the USD 1,500 mark, leaving the market with a shortage of houses in the middle price segment.” This is echoed by expatriate resident Jason Blackwell who said, “There is not much affordable accommodation here [Vientiane], rent—the same as a lot of things—is expensive compared with other countries in the region, with many landlords demanding one to three years or more rent upfront.”

Kongcheep cites not the tight restrictions as the main factor for the lack of foreign investors, but rather the size of the population, which is lower than other countries in ASEAN. Sparsely populated with 6.77 million people and much of the population living rurally, demand is low, and thus, so is supply. Laos’ terrain is another factor: The majority of the country is mountainous with more than 50% covered in forest. Its poor infrastructure restricts the movement of people and trade, however plans for the Kunming-Singapore Railway, a railway linking Kunming, China with Singapore with a central line through Laos, would open up the country. The project, originally set to commence in 2011, would make the country an ideal business hub in the centre of the region’s powerhouses, however corruption scandals, approval from neighbouring Thailand for the follow-on portion of the line and suspended financing have prevented it from getting off the ground.

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THE SLEEPING STATE

Bilateral trade between Laos and Vietnam has reached nearly USD 1 billion.

Laos currently exports two-thirds of its generated hydropower. The biggest purchaser of electricity is Thailand, but the country also supplies Vietnam and Cambodia.

Chinese developer Wan Feng Shanghai Real Estate Company is developing That Luang Specific Economic Zone to create a new urban area on 365 hectares of former marshland in Vientiane. Projects facts: Estimated cost is USD 1.6 billion; due to be completed in 2018 Will include shopping malls, parks, residential and commercial space, and the government has stated that it will create 30,000 new jobs Has been controversial as it involves the relocation of a number of families living in the area

KPMG • PWC • UNILEVER • PANAUST • COCA-COLA • ESSILOR INTERNATIONAL • ASIA PACIFIC BREWERIES LTD. • STANDARD CHARTERED • IMPERIAL TOBACCO • ANZ • VIETNAM RUBBER GROUP • MALAYAN BANKING BHD

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At the end of October 2014, the Ministry of Natural Resources and Environment proposed to amend the Land Law again. A similar proposal was thrown out of parliament in mid-2013, but this draft would allow foreigners to purchase land provided that they have invested in excess of USD 500,000 in the country, but ownership would hold only for the length of the investment. Welcomed news for the Vietnamese who have created 30,000 jobs in Laos through USD 5 billion of investment, mainly in agriculture and mining, and have criticised the country’s processes and property ownership laws. Implementation, however, is slow and according to Stephan Aeschbach, senior partner at J&C Expat Services, discussions of foreign ownership have been ongoing for sometime.

“The size of the land is limited, and the government would choose the land, so it is not very interesting for any investor,” he said, adding that in spite of this, there is increased investment interest from China, Vietnam,

Thailand, Korea and Malaysia as “more and more investors with production bases in Thailand are moving or are considering to move their bases to Laos, among them mainly Japanese companies.” The lack of a safe legal framework deters the west, however, and Blackwell acknolwedges that “there is very little regulation…it can be too much of a minefield.”

Whether the Land Law will ultimately change to favour foreign investors is unknown, but the government of Laos appears to want external investment, and there is scope for increased supply of property due to creeping demand. However, the government surely knows that doing so will create controversy among the local population who protest development and allocation of land from citizens to foreign investors.

“If foreign ownership restrictions are relaxed, it’s going to be like ‘selling the country,’” said Aeschbach, “and that is what so many Lao people are afraid of.”

THE PRICE IS RIGHT IN PHNOM PENH Favourable property laws and a growing condominium market in Phnom Penh mean that Cambodia has high potential for foreign investors.

BY VIRGINIA EWART-JAMES

W

ith premium prices and competitive markets in the some of the world’s hottest property hotspots, it is no wonder that investors look to emerging markets to make their buck. Cambodia is no exception. According to CBRE research, average luxury condominium prices in its capital, Phnom Penh, are USD 1,750 per square metre - 50% lower than neighbouring Ho Chi Minh City and nearly a third of Bangkok’s where the average is USD 4,696

per square metre. Lower property values also attract a wider range of investors, and those wanting to commit to a smaller capital investment.

Phnom Penh has seen significant development over recent years.

“The city is transforming on a daily basis,” expatriate resident Greg Imberty said, noting that the city and its beautiful colonial buildings have been getting a facelift. Familiar names such as Marks & Spencer, Prudential and Qatar

Airways have been springing up, and when the multinationals are confident to invest, residential investors tend to follow suit.

Investing as a foreigner has restrictions.

Cambodia passed the ‘Law on Providing Foreigners with Ownership Rights in Private Units of Co-owned Buildings’ in 2010. Simplified, the law permits foreigners to own above the ground floor of a building and above. This eased the condominium purchase process, and in the same year produced positive results as

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THE PRICE IS RIGHT IN PHNOM PENH

The Garment and footwear industry is Cambodia largest source of income with a 12.6% increase in the first seven months of 2014.

Cambodia registered 3,020 new businesses from Jan to Sept 2014.

This is: a 36% increase compared to the same period of last year.

1,330 new foreign businesses registered, an increase of 20%.

1,690 new Cambodian businesses, an increase of 46%.

Foreigners can own 100% of a company, which attracts many foreign investors.

The minimum capital charge to start a business is USD 1,000.

Cambodia is expected to tighten its policies by introducing a labour and permit card which is required for all works: USD 7-10 for a Khmer, USD 100 for a foreigner 10% rule to limit foreign workers Expected to hit expatriate freelancers and consultants the most The World Bank has forecasted growth of 7.5% in 2015, an increase of 0.3% on 2014.

Cambodia’s largest investors: China • Korea • Malaysia • UK

BANK OF CHINA • MAYBANK • HONG LEONG BANK • MARKS AND SPENCER • H&M • GAP • PRUDENTIAL • MITSUBISHI • SAMSUNG • LAURELTON DIAMONDS • YAMAHA

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Cambodia’s attractiveness as a place to invest was boasted with a 60% rise in tax revenues from property related transactions to USD 19.5 million.

A maximum of 70% of a single building can be owned by foreigners, a 21% increase on Thailand’s quota. As Bangkok sees growing numbers of foreign speculators snapping up condos before the doors of the marketing suite are open, it is unsurprising that investors from China, Japan, Korea and more recently Singapore, Macau, Taiwan, Hong Kong and Thailand are choosing Cambodia as a place to invest.

The mechanisms for owning freehold land are more complex in Cambodia, however, which Simon Griffiths, senior manager of CB Richard Ellis (Cambodia) Co., says can impact on investor confidence. However, Cambodia benefits from a similar or less restrictive legal

framework compared to its regional neighbours. For example, there are no restrictions on foreign exchanges when operated through authorised banks, but the procedures for gaining the title deeds are less straightforward.

This is partly a result of the destruction of all land deed records by the Khmer Rouge in the 1970s. The Chinese are not deterred by these complexities, though, and are the leading investors for land for agricultural and industrial purposes.

To purchase land, a foreigner can legally set up a landholding company with a Cambodian national or entity, although it must officially be majority locally owned. Alternatively land can be purchased by a citizen which is then leased back to the foreigner. “These structural and legal issues are under review currently,” said Griffiths, “and more simplified mechanisms and laws to gain titles should come into force

THE PRICE IS RIGHT IN PHNOM PENH

ROYAL TREATMENT De Castle Royal, a new luxury condominium in Phnom Penh

in 2015 which will improve investor confidence and financing/mortgaging potential.”

There are several hundred NGOs in Phnom Penh, in addition to employers such as Cathay United Bank, H&M and Mizuho, all of whom contribute to the expatriate population of over 70,000, 68% of which live in serviced apartments. In the first half of 2014, 84% of serviced apartments were occupied according to the Asian Institute of Management. A Knight Frank report states that one- and two-bedroom units are the most popular with rents of between USD 1,000 and 2,200 per month, whilst three bedroom units range from USD 2,500 to 3,200 per month. However, condominiums are a relatively new concept to Cambodia and only approximately 1,500 units currently exist.

Previously serviced apartments were the only option, and the demand for condos was identified by De Castle Royal condominium, where

a centralised management service is being created to provide a semi-serviced level of living for residents.

De Castle Royal is the first luxury condominium of its type in Phnom Penh. Spanning 32 storeys, the 414-unit condominium by South Korean developer Nury D&C achieved good off plan sales, and is 95% sold despite only being completed earlier in 2014. Situated in Boeung Keng Kang 1 (BKK1) known—as the ‘foreigner quarter’ since the 1980s as it is a base for NGOs, embassies and hotels—its prime location and level of facilities including a gymnasium, pool and sauna, all contribute to its success.

“The condominiums offer the potential for investors to achieve good capital gains from buying off plan as well as strong rental yields,” said Griffiths.

While multinationals and NGOs contribute to a steady rise in the expat population, it is the

developers who are changing Cambodia’s skyline, and also drawing investors to the country.

Ross Wheble of Knight Frank said, “It’s all about raising the awareness of Cambodia as a place to invest, and where developers have a loyal client base in their own countries, they are able to generate good interest.” A good example is The Bridge, the global developer Oxley Holdings’ joint venture with Worldbridge Land (Cambodia) Co. Ltd, which is another Phnom Penh success story. Opposite the Australian Embassy, The Bridge has panoramic views of Bassac River and consists of 762 units with access to facilities such as a swimming pool, gymnasium, function room and retail space and restaurant. “A number of units have been sold to Singaporeans due to Oxley’s reputation and following,” said Wheble, “and also as a result of the cooling measures in Singapore’s residential market.”

The condominium market in Phnom Penh has seen a steady increase of new units come on the scene in the past five years, which have been well received. “Not only has there been an increase in supply of new condominiums to Phnom Penh, but the quality has improved, giving people more choice,” said local expatriate resident Phil Scott. And because the expatriate market is fairly transient, expatriates tend to rent rather than purchase property, which drives the buy-to-rent market for investors, which currently sees yields from 6% to 8%.

De Castle Royal’s and The Bridge’s warm reception have helped drive the residential property market and entice global investors—both developers and purchasers alike.

CBRE has forecasted that Phnom Penh will see a 180% increase in units in the next four years, and with prime areas becoming densely populated, investors are encouraged to consider outside these areas as demand is spurred across the capital.

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GAMES OF CHANCE

Is property near casinos and integrated resorts a good bet?

BY STEVEN MALLACH

F

or hundreds of years, communities in Southeast Asia have engaged in games of chance. These proto-gamblers enjoyed the roll of the dice and the click of Mahjong tiles, and wherever people gathered in sufficient numbers, some form of gambling was soon a part of the fabric of society.

Today, gambling has become more glamorous. High rollers spend hundreds of thousands—if not millions—of dollars pressing their luck, and more and more internationally owned casino-resorts are being established around Southeast Asia as cities and countries hope to capture some of the revenue that has kept Macau’s economy on the upswing for years.

“The reality is that gaming is very much under-penetrated throughout Asia,” said Grant Goversten, principal and managing director of Union Gaming Group, a boutique investment and securities firm focused on the global casino and integrated resort industry, “so even as new jurisdictions come online all markets are still likely to experience notable growth.”

But can the same be said for nearby property markets? While the establishment or growth of new casinos and integrated resorts could increase opportunities for development of the property that surrounds them, the relationship between profitability of casinos and the profitability of property that springs up in its wake is difficult to

track. A locale’s overall economy, governmental regulations and attitudes towards gaming affect the interplay between the two sectors, so the answer to the question could lie in the quintessential real estate mantra: location, location, location.

High stakes in Macau The most obvious and direct correlation between property and gaming can be drawn in Macau. With 80% of its revenue coming from casinos and affiliated industries, where the gambling industry goes, so goes the rest of the economy—including the property market.

For years, both industries were on a meteoric rise. Revenue in this Special Ad-

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GAMES OF CHANCE

ministrative Region of China has grown by 300% since 2009, and property prices also tripled over the same time period. But with such a narrow base, Macau’s property market and overall economic stability is incredibly vulnerable to external shocks. One such shock came in early in 2014 when Chinese president Xi Jinping launched an aggressive anti-graft and austerity campaign to ferret out corruption and lavish spending. At the same time, there was a crackdown on junket operators and methods some gamblers use to transfer money to and from China. High rollers grew skittish and casino revenue has been dropping steadily since. In October 2014, it fell 23%, the largest year-on-year decline ever recorded. Shares in Macau’s six big casino operators—Sands China, Wynn Macau, Melco Crown, SJM, Galaxy and MGM China—also dropped between 27% and 38% over the course of 2014.

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GLORY DAYS The Casino Lisboa, one of Macau's oldest casinos

What’s more, Macau’s real estate market seems to be following suit. Transaction volumes for 2014 were at a record low, and Ronald Cheung, chief executive officer of realtor Midland Macau, expects the property market to continue to lose momentum in large part because of declines in the gaming industry and tighter visa restrictions for mainlanders. He believes property prices are likely to decrease five percent in 2015.

A drastic drop in money from China may put the brakes on potentially runaway growth, but should the gaming market rebound, the property market could face oth-

er difficulties. In July, a country report by the International Monetary Fund cautioned that there was “some evidence of overvaluation and threat of a housing bubble” in Macau, and advised that “should property-price acceleration persist, international experience indicates that tighter housing-related tax policies and additional macro-prudential measures, such as limits on credit exposure to the property sector and lower loan-tovalue ratios for purchases of second or more homes, could be used to curtail excessive price growth and contain system risk.”

No impact in Cambodia In stark contrast to the inextricably linked fortunes of property and casinos in Macau is Cambodia, where the impact of the country’s single integrated resort is negligible or nonexistent.

Cambodia’s flagship gaming company

GAMES OF CHANCE

NagaCorp, which is listed on the Hong Kong stock exchange, has grown NagaWorld from a sleepy floating casino on a tributary of the Mekong River into a regional gaming destination catering to second-tier high rollers who enjoy the VIP status that they would not receive in Macau.

Today NagaCorp’s integrated resort, NagaWorld, has a stranglehold on the Phnom Penh gambling market. Although there is no shortage of small casinos in Cambodia’s border towns, NagaWorld is Phnom Penh’s only integrated hotel-casino entertainment complex, and that’s not going to change anytime soon. NagaCorp has a deal that most other casino operators can only dream of: a 70year casino license that will run till 2065; an agreement with the Cambodian government that allows the operator to enjoy a 41-year monopoly within a 200km radius of Phnom Penh that expires in 2035; and no taxes on in-

TOP OF THE WORLD Singapore's iconic Marina Bay Sands

has driven commercial development in the area, including the recently completed Aeon shopping mall which is Cambodia’s first international standard shopping mall.”

Net neutral in Singapore come or gaming revenue, just a fixed fee that last year amounted to 1.5% of total revenue.

Ironically, NagaCorp’s monopoly on the industry will prevent Cambodia from morphing into a large-scale gaming and entertainment hub, so new residential and resort properties are unlikely to cluster around it.

“Properties in the vicinity of Naga World are predominantly commercial and institutional in nature and the casino hasn’t really had a quantifiable impact on residential properties in the locality,” said Ross Wheble, country manager at Knight Frank Cambodia.

“If anything, it’s the residential market that

Singapore’s first and only two integrated resorts opened in 2010, and today its market is second only to Macau. Malaysia’s Genting Group and rival Las Vegas Sands operate two casino and resort complexes in the city-state (at Sentosa and Marina Bay Sands, respectively). The Singapore government recently estimated that casinos contribute 1.5% to 2% of GDP and currently employ 22,400 people at the two resorts, with thousands more employed in services related to gaming.

In spite of this positive effect on the economy, the resorts have had no lasting impact on the surrounding residential market. In 2012, property consultancy firm DTZ

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GAMES OF CHANCE

issued a report stating that while the integrated resorts initially resulted in an uplift of residential prices in their respective neighbourhoods, the impact was temporary. Prices of non-landed private homes increased after the two resort sites were initially awarded and until approximately a year and a half before their openings, but grew at a slower pace than the rest of the Core Central Region after they opened, resulting in a net neutral effect.

Momentum in Manila Gambling in Manila has been regulated since 1976, and the Philippine Amusement and Gaming Corporation (PAGCOR), a government entity, opened the first casino in 1977.

Even today, most of the city’s 20 or so casinos are owned by PAGCOR under the Casino Filipino brand. The market is set for explosive growth, however, as more integrated resort and gaming complexes are slated to

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come online in the next few years. Solaire Resort and Casino is the flagship enterprise in the growing entertainment hub of Barangay Don Galo along Manila Bay, and City Of Dreams Manila is scheduled to open within the next 12 months. The third licensee, Manila Bay Resorts, will become operational during 2016.

Manila lags in tourism compared with other cities in the region, with only approximately 1.5 million foreign visitors annually, compared with more than 9 million in Kuala Lumpur, nearly 16 million in Bangkok, 15.6 million in Singapore and 28 million in Macau (14 million overnight visitors). These new developments endeavor to lure visitors from the region generally, as well as capture some of the gaming money from the Chinese market.

While the property market in Manila has already seen strong growth, if mega-casinos and entertainment complexes are successful in attracting tourists in increasing numbers, it

could open up new opportunities for investors in the resort and hotel residence sector.

Opportunities in Vietnam Vietnam currently has six casinos operating throughout the country, and like Cambodia, they offer second-tier players the chance to be treated like royalty (The VIP buy-in at one Vietnam casino is USD 5,000; a VIP in Macau typically requires a USD 250,000 buy-in). More are in the pike, however, as Canada’s Asian Coast Development is developing the Ho Tram Strip, which lies about two hours from Ho Chi Minh City. The Strip is already home to The Grand Ho Tram Strip casino resort, which opened in July 2013, and Asian Coast Development plans to bring a second casino-resort operated by Pinnacle Entertainment Inc., a U.S.-based casino owner-operator, as well as a designer golf course to the 2.2-kilometre beachfront. The whole enterprise is part of a USD 4.2 billion tour-

GAMES OF CHANCE

In spite of this positive effect on the economy, [Singapore's integrated] resorts have had no lasting impact on the surrounding residential market.

WINDING ROAD There is potential for profit in the casinos springing up in and around Ho Chi Minh City.

ist development project aimed at attracting foreign visitors.

Be Island is also being scoped out as a location for a high-end integrated resort and tourist destination that would comprise an airport, five-star hotels and casinos. Ly Son and Be islands include about 10 square kilometres of land that sits 15 nautical miles off the coast of Quang Ngai Province.

These new integrated casino-resorts come at a time of unparalleled opportunity for investing in Vietnam. A new law was passed in November 2014 that will open Vietnam’s residential market to foreigners beginning in July 2015, and the fact that multinationals are sinking resources into largescale developments combined with a market that is largely untapped should yield intriguing prospects.

Conclusion, and a U.S. perspective Outside of Southeast Asia, another per-

spective on the relationship between gaming and property exists. Several real estate associations in the United States—as well as state and local governments—have researched the effect of casino openings on nearby residential property and found that housing values decline by anywhere from 2.3% to more than 10% when casinos are introduced to a region.

One study by the National Association of Realtors said the impact was “unambiguously negative,” citing “congestion and other social costs [that] appear to have a negative impact on home values in the immediate area of a casino.”

There are key differences in the U.S. and Asian market, of course: The regions in question are more likely to be small and mid-sized cities and suburbs, and contain primarily landed residential homes. Still, this research drives home the fact that whatever relationship exists between property prices and gaming in any given market is far from a universal one.

There can be no doubt that there is an enormous appetite for games of chance in Southeast Asia. A growing Chinese (and indeed, pan-Asian) middle class with increasing disposable income has ensured a steady supply of gamb;ers feeding the profits of gaming operations and buoying the fiscal fortunes of their host nations.

There is no doubt that gambling establishments and integrated resorts can increase employment and therefore potentially provide local investors with the capital to invest in property, as well as increase tourism which could drive occupancy at resort residences.

An increase in the numbers of tourists and junkets to a region could help raise its profile and make it more attractive to property investors. At the same time, the population of certain locales could find increases in both human and vehicular traffic unwelcome, and fear that unsavory behavior could flourish around gambling establishments.

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WHEN THE SLEEPING DRAGON AWAKES China’s slowing economy and anti-graft campaign will impact gaming—and potentially property—through Southeast Asia and beyond.

BY BECKY ELLIS

A

s casinos and integrated resort spring up around Asia, the success of the residential and resort properties that follow in their wake will be dependent on more than the usual factors of economic stability, foreign ownership restrictions and interest rates. They’ll be dependent on China.

Macau is one place where China’s economy and policies are already having an impact.

After Chinese president Xi Jinping launched an aggressive anti-graft campaign in early 2014, Macau’s casino revenue has been dropping steadily, and in October 2014, it fell 23%, the largest year-on-year decline ever recorded.

Shares in Macau’s six big casino operators— Sands China, Wynn Macau, Melco Crown, SJM, Galaxy and MGM China—also dropped between 27% and 38% over the course of 2014.

Macau’s real estate market may be following suit. Transaction volumes for 2014 were

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at a record low, and Ronald Cheung, chief executive officer of the property agency Midland Macau, expects the property market to continue to lose momentum because of declines in the gaming industry and tighter visa restrictions for mainlanders. He believes property prices are likely decrease five percent in 2015.

The financial fallout from China’s crackdown on corruption underscores how dependent Southeast Asia’s casinos and integrated resorts are on Asia’s Sleeping Dragon, and the ripple effect it could have on other industries.

And while Macau has the biggest exposure to risk with 80% of its income coming from gaming, it’s not the only gambling destination absorbing the impact. The anti-corruption hit has been felt as far away as Las Vegas, where winnings from baccarat—the favourite game of Chinese mainlanders—fell 36% in October, and overall casino revenue fell 5.6%. The largest share of the loss came from baccarat, ac-

cording to the Nevada Gaming Control Board.

With three new large casino projects launching in Manila over the next two years and aspirations of becoming a serious player in the region’s gaming industry, the Philippines will be keeping a close eye on China as well.

Manila’s Solaire casino anticipates that 50% of its biggest spenders—high rollers who gamble at VIP tables where the minimum bet is PHP 25,000 (USD 556)—will come from China. In addition to the high percentage of profit expected from the Chinese mainland, the Philippines’ tensions with China over territories and waters in the South China Sea make the nation’s casinos and integrated resorts particularly vulnerable to geopolitical flare-ups.

“This does worry us,” Enrique Razon junior, owner of Manila’s Solaire casino told The Economist last year. “When the Chinese government tells people not to go to the Philippines, they don’t go.”

Las Vegas VS.

Macau How do the world’s two biggest casino destinations stack up?

BY BECKY ELLIS

T

he two biggest gambling destinations in the world—Las Vegas, Nevada, in the United States and Macau, China—let foreigners place their bets on more than just blackjack and baccarat. With no foreign ownership restrictions, strong

tourism profiles and the allure of having a home in a world-class entertainment destination, both are popular with players in the property market as well.

While residential prices in each location took a hit during the global financial crisis, the markets have rebounded and

are alive with interesting opportunities that could offer high-yields and potential capital gains. And although Macau clearly comes out ahead when it comes to casino revenue, raking in more than three times that of Las Vegas, it’s not so obvious who will win the property game.

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Las Vegas Population

596,424 (city); 1,951,269 (metro area)

Average property price

USD 124 per square foot

Tourists annually

more than 39 million

Most popular game

Blackjack

Restrictions of foreign ownership

None

Foreign buyers buy... in Las Vegas because many want to have a home in the United States. We are still one of the safest places to have a home and to protect your assets in the world. Las Vegas is ideal because we have a vibrant city with multiple attractions, great weather year-round, and one of the nation’s lowest tax rates because we have no state income tax, no estate tax and low property taxes.

—Heidi Kasama, president, Greater Las Vegas Association of Realtors

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Property profile

Residence at Trump

Price

USD 250,000 to 3.75 million

Number and size of units

526 to 3,080 sq ft; 1,232 studio and one-bedroom units and 50 penthouses

Location

Las Vegas Strip

Unique amenities

Complimentary helicopter tour of Las Vegas for new owners, an access to the on-call ‘Trump Las Vegas House Helicopter’; in-home personal shopping and styling from Neiman Marcus along with accesses to the private store events

Developer

Trump Hotel Collection

Macau Population

552,503 according to the 2011 census; 2014 estimate is 624,000

Average property price

USD $1,052 per square foot

Tourists annually

nearly 30 million

Most popular game

Baccarat

Restrictions of foreign ownership

None

The biggest advantage for foreigners buying properties in Macau is obviously the very attractive profit margins when comparing to other jurisdictions, especially considering that there is no value added tax on real estate transactions.

—Pedro Ribeiro e Castro, senior associate at Manuela António Lawyers and Notaries, Macau

Property profile

The Fountainside

Price

USD to 555,516 to 6.2 million

Number and size of units

718 to 3,700 sq ft; 38 studio to four-bedroom apartments and four villas

Location

Pena Hill District

Unique amenities

Villa buyers receive a free BMW i3 electric car, and villas are equipped with private charging stations; villas feature attached garages and private gardens; eco-friendly green roofs

Developer

Headland Developments

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Who’s in, who’s out in

SOUTHEAST ASIA’s CASINOS?

A

s with property purchases, many countries place restrictions on the nationalities of people who are permitted to gamble within their borders. Unlike property, however, these laws tend to favour foreigners, and citizens of many Southeast Asian countries are required to travel to neighbouring nations if they want to try their luck in casinos.

VIETNAM In September 2014, the Ministry of Finance finalised a draft law regarding the casino business that would allow Vietnamese citizens aged 21 years and older to gamble in Vietnam’s casinos. No timeline has been set for deliberation and approval of the bill At present, Vietnamese may not gamble in their country’s casinos, and all foreigners must pay a fee of approximately VND 1,708,400 (USD 80). Should the law pass, the fee could be higher for Vietnamese nationals.

SINGAPORE Persons aged 21 and above of all nationalities may gamble in Singapore’s casinos, however Singaporean citizens and permanent residents must pay an entry fee of SGD 100 (USD 76.32) per day or annual membership fee of SGD 2,000 (USD 1,526), and are subject to other restrictions. ATMs are prohibited within the casinos.

CAMBODIA Cambodian citizens have not been allowed to gamble in the country’s casinos since 1996, but the Ministry of Economy and Finance is reported to be considering amending the law in the wake of Vietnam’s draft law which would allow it’s citizens to gamble in their home country.

Currently around 3,000 Vietnamese venture into Cambodian casinos each day.

MALAYSIA Gamblers must be 21 or older to enter Malaysia’s casinos, and Malaysian citizens must be non-Muslim.

PHILIPPINES Philippines citizens and foreign nationals aged 21 and up may gamble legally in the nation’s casinos.

MACAU Persons of any nationality who are at least 21 years of age may gamble in Macau’s casinos.

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THE CHANGING FACE OF METRO MANILA Most signs point up for the Philippines’ capital, but concerns over increased speculation give some investors pause.

BY STEVEN MALLACH

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THE CHANGING FACE OF METRO MANILA

T

he current property climate in Metro Manila is the result of the rampant development characterising the area, which bears very little resemblance to the low-rise town of two decades ago. Today, identifying which areas of the city have become the darlings of developers is as simple as viewing Manila’s rapidly changing skyline from the top floor of one of the city’s many new high-rise buildings. Amidst a sea of cranes and scaffolding the districts of Makati, Bonifacio Global City and Ortigas stand out as shining examples of the growing prosperity and potential of Metro Manila.

Michael McCullough, managing director of the KMC MAG Group, a Savills-affiliated Philippine real estate services firm headquartered in Bonifacio Global City, is upbeat about the growing potential of the city, and indeed the Philippines in its entirety. His optimism is founded on the Philippine macroeconomic fundamentals, as well as a growing confidence in the sustainability of the country’s outsourcing sector and the increasing trend of Overseas Filipino Workers (OFWs) using remittances to purchase property as one the driving forces behind the ongoing strength of the property market.

“We believe that the current growth of the Philippine economy is definitely sustain-

THE KEY THREE Macroeconomic fundamentals of the Philippines appear strong, with thriving business process outsourcing (BPO) and manufacturing sectors, strong consumption and continued increase in private construction.

In November 2014, a record price was achieved for the sale of land in Bonifacio Global City, prompting concern about speculation and the potential for an asset bubble.

OLD AND NEW Coloured roofs on local houses contrast with the new skyline of Bonifacio Global City.

Foreigners cannot purchase land in the Philippines, but can buy condominiums. They are permitted to own up to 40% of a development.

V

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THE CHANGING FACE OF METRO MANILA

SHINY AND NEW Sleek new buildings populate the Makati CBD.

able, given that it is highly dependent on internal factors,” he said. “The real question is whether or not there is enough political will to maintain its current economic status, which can be done through reforms and increased public investments.”

A recent report by KMC MAG stated that the Real Estate sector contributed 16.6% in total to the Philippine GDP in 2013 in the form of construction and property-related services. This sector grew by 9.3% during that year, which provides investors with some insight into the strength of the thriving local real estate market.

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“There are a variety of factors that underpin the strong growth of the property sector in Manila,” McCullough said. “We continue to see a rapidly evolving, world class outsourcing sector; a growing pool of human resources; strong private consumption; a robust manufacturing sector; and a growing enthusiasm for the Philippines as a tourist destination. All of these factors are cementing the Philippines as one of the fastest growing economies in Asia, second only to China.”

Still, while there is no doubt that the property market is being driven upwards by strong economic fundamentals and chang-

ing demographics—including increasing disposable income among a younger and more investment-hungry workforce—there are reasons for investors to be cautious.

Most recently, a record price of PHP 500,000 (USD 11,176) per square metre was achieved for the sale of land in Bonifacio Global City—approximately 80% more than the last government land sale in the area, and largely agreed to be speculative in nature— prompting murmurs of a bubble.

Kash Salvador, an investment manager at CBRE Group in the Philippines, told Bloomberg that the bid “has an effect on property

THE CHANGING FACE OF METRO MANILA

prices and rents. It could create the belief that anyone is able to lock in value seen usually in top-tier property.”

McCullough concurs that the sale price is a concern.

“While the Philippines is in what could be a long growth cycle, there are many foreign investors in the residential market who aren’t familiar with the secondary sales market, plus the transactional costs of selling a property, which can be as high as 20% or more,” said McCullough. “We are worried that when investors try and exit, the liquidity may not be there. This will either push prices down or add inventory to the residential leasing market, also putting pressure on the rental rates.”

But opinions within the development industry are mixed. While SM Investments Corp’s chief financial officer, Jose Sio, has said that a correction the housing market is overdue, Jericho Go, a senior vice president of Megaworld, believes that the central bank has been and will continue to be proactive, enabling the market to avoid a bubble.

While the Philippines is in what could be a long growth cycle… we are worried that when investors try and exit, the liquidity may not be there.

In September 2014, the Asian Development Bank (ADB) also lowered its Philippine economic growth projections slightly for 2014 from 6.4% to 6.2% due to low government spending, higher consumer prices and an increase in interest rates. It lowered 2015 projections as well, from 6.7% to 6.4%.

Nonetheless, the ADB still said that the country was experiencing “robust expansion,’ and noted that private construction—while moderating from the rapid pace of recent years—is projected to increase through 2015, good news for those in the market for Philippine property. Building permits rose 11.2% year-on-year in the second quarter this year as both residential and non-residential approvals increased. Foreign direct investment, though low compared with other countries in the region, jumped 77% in the first half of 2014 to USD 3.6 billion—and almost doubled in 2013 to 3.8 billion from an annual average of about USD 2 billion in 2008 to 2012. The ADB also indicated that inflation may ease from 4.4% in 2014 to 4.1% in 2015.

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UNDERSTANDING METRO MANILA A guide to the most promising areas in and around the Philippines' capital

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W

ith districts, sub-districts, neighbourhoods and suburbs, it can be difficult to make heads or tails of Metro Manila. Makati and Bonifacio Global City, also known as Fort Bonifacio, are two of the sixteen cities within the region of Metro Manila.

Makati is the country's leading financial centre with the highest concentration of multinationals and skilled workers commuting into the city, whereas Bonifacio Global City has only recently witnessed commercial growth due to the sale of military land which was once owned by the Philippine army. Ortigas and New Manila are both districts. Ortigas sits within the city of Pasig, another financial hub which is also home to shopping malls, skyscrapers, nightlife and restaurants, while New Manila is in Quezon City, known for its quieter residential feel and spacious houses.

MAKATI ORTIGAS CRIME

By all accounts Ortigas sees it fair share of crimes, including capital crimes. As usual being alert to to the dangers of petty crime and taking care not to venture to far off the beaten track are the keys to avoiding becoming a statistic.

HIGH-PROFILE TENANTS

Ortigas is home to a number of internationally prominent engineering firms such as Parsons Brinckerhoff, Sinclair Knight Merz, and the WSP Group.

SHOPPING AND DINING

In keeping with its standing as a business and financial centre Ortigas boasts a number of fine dining and shopping choices.

Many of these destinations are housed in SM Megamall, the largest shopping mall in the Philippines, located in the Ortigas business district. The mall has a maximum capacity of four million people. For those interested in getting some exercise the mall boasts an ice rink. For those more interested in slightly less strenous activity there is also an IMAX theatre. As far as dining attractions go, if you are in search of exceptional eating in Manila head towards the nearesr Shangri La Hotel.

Heat at the Edsa Shangri La in Ortigas has a great reputation.

SPECIAL ATTRACTIONS

Want to get rid of some of the big city grime? Check out Ace Water Spa, within shouting distance of the Ortigas business district.

DEMOGRAPHICS

According to the KMC MAG Group Ortigas has a population of 728,899 and a labour force numbering 116,000.

There is a perception that the level of crime in Makati is high, with some justification. However, the government in July 2014 appointed 350 extra police to patrol the financial district - part of a commitment to more visible policing.

CRIME

HIGH-PROFILE TENANTS

International companies like Intel and PwC call Makati home.

SHOPPING AND DINING

One of the most popular malls in Makati is the Greenbelt shopping complex, located at Ayala Center, Makati City, Metro Manila which has restaurants and retail outlets to suit every taste. A huge variety of after hours entertainment is available in the Makati district. From Samba dancing to Karaoke, the visitor to the Makati district is spoiled for choice. Some favourites include Cafe Havana where visitors can enjoy authentic Cuban-Caribbean dishes and some of the world’s best cigars, as well as the restaurant at the Makati Shangri-La Hotel, which receives consistently great reviews. For the sports bar enthusiast P. Burgos/Kalayaan Avenue is the place to be (although some may find this area a little racy as it’s know as Manila’s ‘red light’ district).

SPECIAL ATTRACTIONS

The Ayala Museum with its display of gold jewellery spanning a 400-year period is certainly worth a visit. To relax and enjoy a moment of reflection the Ayala Triangle Gardens are perfect (and there’s free wifi).

DEMOGRAPHICS

The latest census results show that Makati has a population of 529,039, however during the working day the district swells to bursting with an estimated 4.7 million (up from 2010’s 3.7 million) people putting serious strain on the infrastructure. If it’s raining don’t plan on getting home anytime soon, Manila’s traffic can grind to a halt on wet days.

NEW MANILA BONIFACIO GLOBAL CITY CRIME

The website numbeo.com collects data from visitors to gauge opinion on crime levels in cities across the globe (amongst many other things). According to the site, crime levels in Manila as a whole are high, but BGC has one of the lower crime rates. Still, visitors should be aware of their surroundings and use taxis to get around. Sticking to the ‘Westernised’ attractions and using common sense will usually be enough to avoid becoming a victim of crime.

HIGH-PROFILE TENANTS

GC is tremendously popular with Philippine Business Process Outsourcing companies (some estimates say that up to 60% of office sapce in BGC is taken up by BPO companies).

Astrazeneca and the Philippine National Oil Company, as well as Ogilvy & Mather are also high profile tenants.

SHOPPING AND DINING

If you’re a shopaholic or a foodie then Bonifacio Global City’s kilometre-long High Street is where you need to be.

The strip features offices, fashionable boutiques, numerous top class restaurants and bars, an urban amphitheatre, water plaza, garden islands, and interactive art pieces.

Many diners swear by The Food Hall by Todd English where one can enjoy a delighful laid back ambiance and tuck into both Amercian and Asian styled dishes. An alternative is Market! Market!, a mall with a distinct Sunday street market feel that features traditional and non-traditional retailers and wholesalers. The mall has themed retail zones, fruit and flowers market, and a regional food and hawker’s area.

SPECIAL ATTRACTIONS

For a moving experience a visit to the Manila American Cemetery and Memorial is highly recommended. This monument includes the graves of thousands of Americans who died fighting in the Philippines in World War II.

DEMOGRAPHICS

BGC is significantly smaller than Makati and has a population estimated at around 21,000 people. BGC is known for its cosmopolitan lifestyle and is home to some of Manila’s most prominent citizens, it also has a reputation for catering to the international visitor and expats. Many expats are drawn to the area due to the availability of high quality international schools in BGC.

CRIME

New Manila is a sub district of Quezon City, which has enacted several restrictions to increase safety, including requiring businesses to have CCTV in order to get a business permit, and enforcing the restriction of minors (aged under 18 years) from loitering in public areas between 10 p.m. and 5 a.m.

HIGH-PROFILE TENANTS

Quezon City is becoming recognised as a new vibrant area to do business. The Philippine Amusement Enterprise Corporation is based in New Manila, one of the leading manufacturing and leasing of water cooler dispensers, including water purifiers and hand driers. Individuals calling New Manila home include relatives of the presidential family and several politicians.

SHOPPING AND DINING

A shoppers’ paradise, Robinsons Magnolia Mall sits just on the outskirts of New Manila. One of the largest retailers in the Philippines, Robinsons is home to a range of shops and dining options. Names include Nine West, Fred Perry, Tommy Hilfiger, Gap, Samsonite, Muji, along with children’s shops, supermarkets and hardware stores. Robinsons Magnolia has a four-screen cinema and the dining choices include New Orleans, Happy Lemon, Thai Bistro in addition to a vast food court making it a great entertainment destination. Outside of the mall, other restaurant choices include Japanese restaurant Yabu, Italian restaurant Pazza Rollio and Argentina steakhouse Gaucho Cocina y Vinos.

SPECIAL ATTRACTIONS

New Manila is a largely residential area. Becoming popular post World War II when affluent families wanted space and an escape from the hectic city, today many of the houses still are known for their preserved heritage and sit on plots over 500 square metres. It is also home to the Quezon City Sports Club, a recreational centre for families and businesses. The Betty Go Belmonte Abandoned Building is famed for its graffiti walls, making it a popular place for photo shoots.

DEMOGRAPHICS

According to the Quezon City government, the population of Quezon City is approximately 3,179,536 making it the largest and most populous city in Metro Manila. However, this is not a true reflection of New Manila, which is less densely populated because its properties sit on larger plots. Quezon City government also state that there are 62,679 businesses registered within Quezon City.

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59

NATURAL HAZARDS

Although Manila has been spared much of the latest devastation visited on the Philippines, the country as a whole is regularly buffeted by typhoons, shaken by earthquakes or lit up by volcanic eruptions.

The Philippines sits squarely in the Typhoon Belt, where approximately 80 typhoons develop each year. On average around 19 enter the Philippine region and six to nine make landfall, according to the Joint Typhoon Warning Centre, located in Pearl Harbour, Hawaii. In addition, the country is part of the Pacific ‘Ring of Fire’ where earthquakes and volcanic eruptions are common occurrences.

Here is a list of recent natural disasters affecting the Philippines. Property investors should take into account that these unforeseen disasters may have a material (and literal) impact on their investment.

GUINSAUGON LANDSLIDE

TYPHOON FENGSHEN

FEBRUARY 2006

JUNE 2008

The village of Guinsaugon, on the southern part of Leyte island, effectively ceased to exist on 17 February 2006 when an entire mountainside collapsed onto the village. It is estimated that 1,126 people were killed in the disaster.

A school and 500 homes were wiped out by a rapid flow of mud that engulfed the town. The disaster occurred after torrential rains of up to 200 centimetres within 10 days. Locals cite deforestation caused by illegal logging as partly to blame for the catastrophy.

Typhoon Fengshen, also referred to as typhoon Frank, caused widespread devastation in the Philippines during June 2008, killing at least 557 people.

It affected more than 99,600 families all over the Philippines, damaging more than 155,500 houses in 10 regions. The Philippine’s National Disaster Coordination Council (NDCC) placed the damage to agriculture and fisheries at USD 76.4 million, infrastructure at USD 17.4 million, schools at USD 4.9 million and fishing boats at USD 2.5million.

propertylifeasia.com

TYPHOON BOPHA

NOVEMBER – DECEMBER 2012 Super typhoon Bopha made landfall on 3 December 2012, on the Philippines’ southern island of Mindanao, which had been destroyed by the Washi storm a year before. Bopha caused widespread destruction on the island with more than 600 fatalities. The damage was estimated at more than USD 1 billion.

BOHOL EARTHQUAKE OCTOBER 2013

In the early morning of 15 October 2013, the Philippine island province of Bohol was hit with a devastating earthquake, the deadliest to hit the Philippines in 23 years. The 7.2 magnitude quake lasted 34 seconds, killed 222 people and injured 976 others. More than 73,000 houses were damaged or destroyed. It has been estimated that the energy the quake released was equivalent to 32 Hiroshima bombs.

NOVEMBER 2013

NOVEMBER 2006

60

The mining community of Pantukan town on the southern Philippine island of Mindanao is particularly vulnerable to landslides due to its natural landscape of steep slopes, rugged land and a lack of vegetation to anchor the soil around the town. On 5 January 2012, a deadly wave of mud and rocks descended on the town and 25 people were killed when the landslide struck a gold mine site nearby.

TYPHOON HAIYAN

CYCLONE DURIAN On 25 November 2006, an intense tropical cyclone called Durian slammed into the the Philippines, obliterating whole neighbourhoods and causing the death of 720 people. Due to heavy rainfall, Legazpi City struggled to cope with widespread flooding while mudslides from the Mayon Volcano buried many villages, causing another 800 to 1,000 casualties. When the numbers were tallied Durian was found to have caused the death of almost 2,000 people while hundreds more remained missing. Damages in the Philippines were estimated to be USD 130 million.

PANTUKAN LANDSLIDE

JANUARY 2012

TROPICAL STORM WASHI DECEMBER 2011

One of the few storms to make landfall in southern Philippines, tropical storm Washi triggered flash floods that destroyed many local communities. The storm left 1,080 people dead and destroyed the coastal cities of Cagayande Oro and nearby Iligan. It took months for power and clean water to be restored to the region.

Typhoon Haiyan, known in the Philippines as typhoon Yolanda, was one of the strongest tropical cyclones ever recorded. It pummeled portions of Southeast Asia and slammed into the Philippines on 8 November 2013, killing at least 6,300 people.

The city of Tacloban, Eastern Visayas, about 580 kilometres from Manila was largely destroyed by a 13-foot storm surge, and casualties ran into the hundreds. Typhoon Haiyan is the deadliest Philippine typhoon on record. Haiyan is also the strongest storm recorded at landfall, and unofficially the strongest typhoon ever recorded in terms of wind speed.

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A Barrel of Fun

Asian Art

Why investors are getting in on the ground floor

How wine investment combines passion with prudence

Most Wanted

The Luxury Investment Index Get rich and enjoy doing it

Stocking fillers for the ambitious

THE

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LIFE IN A BOX

BY STEVEN MALLACH

W

ith an estimated 30 million shipping containers in circulation and an average lifespan of around 20 years, the challenge of what to do with mounting numbers of discarded containers is now being addressed by some of the best architectural minds on the planet, who are treating used shipping containers like a child treats a set of Legos. The result is extremely cost-effective modular homes that range from utilitarian to the luxurious.

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A simple, yet striking examples was designed by architect Benjamin Garcia Saxe on a budget of only USD 40,000. Saxe collaborated closely with his clients on the design of the 93 square metre Costa Rican home, which the clients then constructed themselves. Saxe writes that the owners, Gabriela Calvo and Marco Peralta, “made the very bold choice of exploring with me the possibility of creating a very inexpensive house… that allowed them to be debt free and live the life they always dreamed of.”

SELF-CONTAINED Gabriela Calvo and Marco Peralta's shipping container house

INVESTMENT & LIFESTYLE GUIDE • ISSUE 03

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82 Coffee berries growing in Thailand

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For updates and more commentary, ‘Like’ us at facebook.com/investmentlifemagazine

CONTENTS 69 Most wanted

Fabulous festive season gifts for everyone on your list

73 The index

73 Knight Frank’s Luxury Investment Index highlights the biggest winners in passion investments.

76 A closer look at food and beverage commodities

79 An underground investment

Savoury, earthy, rich‌ truffles are terrific for your tastebuds, but are they good for your portfolio?

82 Hot commodity

With demand increasing and supply in flux, should coffee be fuelling your portfolio as well as your breakfast?

87 Is money growing from the tree of Life?

There are opportunities to profit from the coconut trade in Southeast Asia.

96 The good life

Michael Waitze, partner and managing director of Metaliq Growth Partners

For over a decade, Asia Plantation Capital (APC) has been the owner and operator of a range of sustainable commercial plantation and farming businesses around the world.

APC’s mission is to become the leading operator of sustainably managed forestry and agricultural plantations, from project evaluation through to plantation management and forestry product distribution. An underlying core principle of the APC business is to work closely with, and support local communities as we believe corporate responsibility is not just about securing profit for shareholders and investors, but also to contribute positively to society and the environment.

email: info@asiaplantationcapital.com • www.asiaplantationcapital.com

Holiday

GIFT GUIDE Festive Season gifts are at the top of shopping lists as the holiday season approaches and festivities get in full swing. Get inspiration from our assortment of presents, all carefully selected for a range of recipients. From luxury presents for loved ones to stylish accessories for colleagues, plus fun ideas for children and extravagant options for the man—or woman—who has everything!

EVERYDAY ESSENTIALS Practical purchases with a twist of indulgence… perfect for so many people on your list.

ASICS GEL-LYTE33 3 USD 128.96 asics.com RUNNING SHOES AESOP JET SET KIT USD 40.44 aesop.com

KATE SPADE ‘SABINE’ VELVET LAMB FUR SLIPPERS USD 100 lanecrawford.com

HARRODS LONDON USD 34.34 ICONS TEA GIFT SET harrods.com

MISSONI MEN’S RED PINSTRIPE ANKLE SOCKS USD 45.37 liberty.co.uk

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MOST WANTED

TOYS FOR TOTS See their faces light up when they open a gift that’s sure to keep them delighted for years to come.

REBEL KIDZ ‘LE MANS’ WOOD BIKE USD 137.37 sunkissbabies.com

USD 375 FIELD CANDY’S ‘CLOWNING AROUND’ CIRCUS PRINT TENT anecrawford.com

VTECH KIDIZOOM CAMERA USD 98.44 mylittleshoppers.com

CULINARY DELIGHTS HOPE AND GREENWOOD ‘JOLLY’ HAMPER USD 78.23

Keep your favourite foodie—or favourite office—stocked through the new year.

selfridges.com

CHRISTMAS DELIGHTS USD 206.20 CHRISTMAS HAMPER gifthampers.com.hk

DON PERGINON 2003 CHAMPAGNE USD 190.77 liquorbar.sg

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MOST WANTED

BEST BUSINESS BETS Whether for a colleague, client or a member of your staff, these smart new office accessories will start 2015 off right.

SMYTHSON GRESHAM COLLECTION A4 ZIPPED FOLDER USD 672.78 smythson.com

WATERMAN HEMISPHERE PEN WITH GOLD PLATED TRIM USD 113.43 penshop.co.uk

SPOUSAL STOCKING STUFFERS Treat your loved one with these small, but perfectly formed, treats to show how much you care.

DIPYTQUE ‘FIGUIER’ SCENTED CANDLE USD 60

ALESSI ALESSANDRO M CORKSCREW USD 76.31 lazada.sg

shop.nordstrom.com

POLO RALPH LAUREN LEATHER KIT USD 145 nordstrom.com

PAUL SMITH HIP FLASK

USD 352.04

paulsmith.co.uk

JO MALONE 120 ‘PEONY & BLUSH USD shop.nordstrom.com SUEDE’ COLOGNE

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MOST WANTED

EXTREME EXTRAVAGANCE The most difficult person to buy for: someone who has everything. These unique gifts have a ‘wow’ factor that’s guaranteed to knock their socks off.

MR KENNEDY 24 USD 19,000 CARAT GOLD LACES mr-kennedy.com Mr Kennedy made the ultimate luxury out of the quintessential necessity: shoelaces. These 24 carat gold numbers are limited to 10 pair worldwide, and are delivered by security and laced for you anywhere on the globe.

LA PRAIRIE SWAROVSKI EDITION SKIN CAVIAR LUXE CREAM USD 2.190.45 harrods.com

Everyone’s favourite skin cream is taken to new heights in this limited edition Swarovski-studded jar for Harrods. The luxurious cream—enriched with caviar extract—pampers the skin; the jar will be treasured for years to come.

KNIPSCHILDT’S LA USD 250 MADELINE AU TRUFFLE knipschildt.net Heralded by Forbes as the most expensive chocolate in the world, the La Madeline au Truffle is a Perigord truffle sunk in ganache of 70% Valrhona chocolate and truffle oil, enrobed in more Valrhona chocolate and rolled in cocoa powder.

Made to order and presented in a wooden box on a bed of sugar pearls, it’s the ultimate extravagance for chocolate lovers everywhere.

LA PRAIRIE SWAROVSKI EDITION USD 125.09 harrods.com SKIN CAVIAR LUXE CREAM The young—and the young at heart—will love cruising around the living room with their Aston Martin Dbs Coupé. No license required!

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Knight Frank’s Luxury Investment Index highlights the biggest winners in passion investments.

K

night Frank’s Luxury Investment Index climbed 6% in the 12 months to Q2 2014. Spanning luxury items such as antique furniture, Chinese ceramics, jewellery, wine, watches, stamps, art, coins and the Index’s leader,

classic cars, it examines each asset class and tracks its performance as an investment over time. The average increase in the value of passion investments has been ahead of gold, and is only slightly behind the FTSE 100 equities interest and

Knight Frank’s Prime Central London Residential Index. We talked to the report's author, Andrew Shirley, about the nuances of the asset classes, portfolio diversification and the pure pleasure of luxury investments.

KFLLI PERFORMANCE BY ASSET CLASS (TO Q2 2014)

12 MONTHS 25 %

-8 %

ANTIQUE FURNITURE*

-2

0

CHINESE CERAMICS

JEWELLERY

%

3%

3

3

5%

6

WINE

WATCHES

STAMPS

ART

KFLLI

%

10 %

%

%

%

COINS

5 YEARS

CARS

111 %

90 %

17 -22

34

39

STAMPS

JEWELLERY

%

43

44

45

49

CHINESE CERAMICS

KFLLI

WINE

WATCHES

%

%

%

%

%

%

%

ART ANTIQUE FURNITURE*

COINS

10 YEARS

469 %

163

182

JEWELLERY

KFLLI

%

-24

CARS

65

67

WATCHES

CHINESE CERAMICS

%

195

221

226

226

STAMPS

COINS

WINE

ART

%

%

%

%

%

%

%

ANTIQUE FURNITURE*

CARS

*Furniture data to Q1 2014

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LUXURY INDEX

You should really only buy luxury investments that you really enjoy owning, not just because you think they might go up in value. What’s the point of buying a classic car that you don’t enjoy the look of, or a piece of art that you don’t want to hang on the wall? Passion investments should only make up a small portion of your portfolio, [so]… buy exactly what you want to buy regardless of the market.

STAMPS

Sotheby’s auctioned off the only surviving British Guiana 1856 one cent stamp this year for a price of USD 9.48 million, making it the world’s most expensive stamp.

"Stamps are quite interesting because they are reemerging, they’re being pitched as a genuine investment category. There’s a lot more awareness of them as an investment rather than just a schoolboy’s [hobby]. Stamps are also quite compact so they’re easy to transport, unlike a classic car, and they’re low maintenance… I don’t think [growth] will tail off. It’s been relatively modest compared to something like classic cars, and I think it will carry on fairly calmly."

COINS An Edward VIII Sovereign gold coin set an auction record this year when it was sold by Baldwins for GBP 516,000 (USD 808,946). The coin is one of two proofs that were struck before Edward’s planned coronation in 1937; it was never minted as Edward abdicated in 1936.

"[Coins] have quite a history to them, because unlike stamps, they can be thousands of years old."

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LUXURY INDEX

ART PERFORMANCE OF ART BY GENRE

SOURCE: Art Market Reasearch

OLD MASTERS

EUROPEAN 19TH CENTURY ART

ONE YEAR FIVE YEARS TEN YEARS

176 %

153 %

5 %

20 %

15

19 %

%

Still-Life with Pie, Silver Ewer and Crab

EUROPEAN IMPRESSIONISTS

The Woman with the Pearl

MODERN ART

286 %

274 %

12 %

37

10

0

%

%

%

Haystacks

CONTEMPORARY ART

Road with Cypress and Star

10-YEAR PERFORMANCE OF FURNITURE BY PERIOD EARLY & MID 20TH CENTURY

233 %

29 %

ENGLISH 18TH CENTURY

REGENCY

FRENCH 18TH CENTURY

-34

-35

-44

%

1

%

%

%

4 %

SOURCE: Art Market Reasearch The Harbor of Antwerp

CARS "When you talk about classic cars, it can mean very different things depending on who you’re talking to."

A 1962 Ferrari 250 GTO Berlinetta set a new auction record after being sold for USD 38 million by Bonhams in California.

Shirley stresses that the Knight Frank Luxury Index tracks 50 of the world’s best and rarest classic cars and says that this price trend is not applicable to every car on the market. Large production runs of American classic cars, for instance, mean that growth is not as strong. “When you talk about classic cars, it can mean very different things depending on who you’re talking to,” he said.

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Putting your money where your mouth is Examining food and beverage commodities going into 2015, from the World Bank Outlook report

2014 in review

the largest hit, down almost 20%, with the largest decline in corn. Edible oils and meals declined around 5.6%, with soybean oil bean the biggest loser, down 13%.

The World Bank published their final Commodities Market Outlook of 2014 in October, which indicated that 2014 is expected to end with a 3.1% decline in food commodity prices. Meat—particularly beef and shrimp—were up, while grains have taken

FOOD & BEVERAGE PRICE INDICES

Assumptions and risks for 2015 The 2014-2015 season is expected to follow

(2005=100)

275

CEREALS BEVERAGES

250

VEGETABLE OILS & MEAL MEAT SEAFOOD

225 200 175 150 125 100 JAN - 11

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JAN - 12

JAN - 13

JAN - 14

normal trends with respect to crop conditions. In its October 2014 assessment, the U.S. Department of Agriculture estimated the 2014-2015 crop season’s grain supplies (production plus stocks of maize, wheat, and rice) at 2.68 billion tons, marginally higher than last season’s crop of 2.67 billion tons and adequate to maintain S/U ratios at normal levels, following the historical lows reached a few years ago. The upside price risks related to El Nino are also diminishing.

Oil prices are projected to average USD 102/ bbl in 2014, declining to USD 96/bbl in 2015 with fertilizer prices are expected to fall considerably, nearly 12% through yearend 2014, followed by an additional 3.5% in 2015. Given that agriculture is an energy intensive sector—estimated at four to five times more intensive than manufacturing— the easing of fertilizer prices, some of which are closely linked to natural gas prices, will relieve the input price pressure that most food commodities have been subjected to during the past decade.

COMMODITY INDEX

Is now a good time to invest in corn?

Yes

No

"When you get a perfect storm of great weather and farmers really focusing on productivity because prices were so high in 2012, you have a surplus. But a record crop is already priced into corn at this point."

“Corn is nowhere near where it bottomed in 2006, in the USD 2-a-bushel range. I don’t know if it can go that low, but it certainly can go lower [than it is now].”

—Miranda Davis, manager of the BPV Core Diversification fund**

—Sal Gilbertie, president of Teucrium** **As told to Barron’s

OCTOBER COMMODITY PRICE CHANGES

-50

% Change October 2013 - October 2014

0

NON-ROBUSTA MILDS BEEF FISH MEAL ROBUSTA SUGAR - UNITED STATES LAMB SWINE MEAT TEA COCOA BEANS OLIVE OIL POULTRY SHRIMP SUGAR - EUROPE BANANAS RICE PALM OIL SEAFOOD SUNFLOWER OIL SUGAR - FREE MARKET FISH RAPESEED OIL SOYBEAN MEAL MAIZE SOYBEAN OIL GROUNDNUTS WHEAT SOYBEANS BARLEY ORANGES

SOURCE: International Monetary Fund Indices of Market Prices for Non-Fuel and Fuel Commodities, 2011-2014

50

100

The outlook also assumes that biofuels will continue to play a key role in the behavior of agricultural commodity markets, but that role will be less important than in the recent past. Currently, production of biofuels corresponds to 1.31 mb/d of crude oil in energy-equivalent terms, up from 0.3 mb/d from a decade ago. Biofuels are projected to grow moderately over the projection period (much slower than earlier assessments) as policy makers are increasingly realizing that the environmental and energy independence benefits of biofuels by no means outweigh their costs.

Indeed, global production of biofuels increased little during the past three years.

The outlook assumes that policy responses, such as export bans, are unlikely to be put in place in an environment of well-supplied agricultural markets. If the baseline outlook for production materializes, then even if policy actions are implemented, they are likely to be local and isolated events with minimal impact on world markets.

Lastly, investment fund activity, which was on the rise until 2011, has stabilized.

According to Barclayhedge, which tracks developments in the hedge fund industry, assets under management in commodities (most of which have been invested in energy and agricultural markets) have been remarkably stable during the past three years (averaging USD 320 billion during 2014Q2, the lowest since 2011Q4). Such stability reflects both balanced in-flows compared to out-flows and low commodity price volatility.

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AN UNDERGROUND INVESTMENT Savory, earthy, rich… truffles are terrific for your tastebuds, but are they good for your portfolio?

BY VIRGINIA EWART-JAMES

T

ruffles show up in literature as far back as the twentieth century BC, however they gained popularity in Paris in the 1780s when local flavours began being chosen over the oriental spices which had previously flooded the elite food scene.

Considered the height of culinary luxury, a few shavings over a pasta, soup, meat or salad dish immediately enhances its superiority. Largely wildly sourced, the truffle world is shrouded in secrecy. Truffles are sniffed out by truffle pigs or specially trained dogs, and hunters keep their truffle locations close to their chest as ripe truffles releases millions of spores, mak-

ing the soil even more lucrative the following season.

Originally native to Italy and France, these fruiting bodies of fungi’s entire lifecycle occurs under the earth beneath particular trees. Its gleba, or flesh, varies in size and colour with tuber magnatum, the white Italian truffle, crowning the truffle league with a staggering value of EUR 5,000 (USD 6,368) per kilogram, partly because they cannot be commercially cultivated. In comparison, the value of the second most valuable truffle, the tuber melanosporum (the Périgord or black truffle) indigenous to France, is half this.

The cities of Asti and Alba in Italy are both famous for their white Italian truffle, which are only in their prime for a few weeks. Typically harvested between October and December, the season is short but when in full swing, truffles appear on menus across the world from Manhattan to Moscow. The Asti truffle market opens each Wednesday morning during the season, and the Trade Agriculture and Craft Chamber, also in Asti, records sales so the percentage change between the weeks can be calculated for this ultimate luxury commodity.

As with any investment, supply and demand affects the rate of return, which in the

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79

AN UNDERGROUND INVESTMENT

case of the truffle is influenced by Mother Nature. “Supply and demand [of truffles] depends upon weather conditions,” says James Feaver, owner of The English Truffle Company, a UK business that sources truffles.

The precarious conditions required to grow contributes to its status as a delicacy, but also affects truffle harvests and values.

Recent data from the National Centre for the Study of Truffles based in Alba states that the cost of the white Italian truffle has reduced 37% from 2013. A bout of unseasonably heavy rainfall in Italy this year has spawned a record number of fungi, illustrating the supply and demand mechanism. Prices have declined from Euros 500 (USD 637) per 100g in 2012 to Euro 350 (USD 446) the following year to the present value of Euro 220 (USD 280).

Nevertheless, the truffle industry is still estimated to be worth USD 400 million, according to Mauro Carbone, director of the National Centre for the Study of Truffles, and

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is a vital source of income for Italy, which was one country that bore the brunt of the global financial crisis. As tastes evolve across the world and foodstuffs clock up air miles to meet consumer preferences, demand for truffles is forecasted to continue to flourish and Carbone predicts that truffle based products will increase in emerging markets such as China, Vietnam and India.

“Demand is also increasing all the time as global incomes grow and people are able to access channels better to purchase this produce,” says Dr. Paul Thomas from truffle researchers Mycorrhizal Systems Ltd. Truffle farms have been in existence since 1808 and Martin Waddell, a keen truffle enthusiast and founder of Truffle Trees, has a truffle farm in France where limestone rich soil and optimal weather conditions maximise truffle harvests. Waddell’s initial interest was purely for personal investment, an inheritance for his children, however having

witnessed the interest generated in his Périgord truffles, Waddell came to believe that the potential returns achieved from truffles could be an attractive alternative investment for others as well.

One particularly savory aspect of investing in a truffle tree is that it allows UK investors to benefit from the same tax breaks as investing in forestry—a benefit that can also be enjoyed by non-British investors as Truffle Trees can establish and maintain a UK company in the investor’s name for a fee. Perks include no capital gains tax on the value of the tree (although the income from the plot on which they grow is taxable), an avoidance of inheritance tax after two years of cultivation as well as no income and corporation tax on the income and profits arising from the occupation of commercial woodland.

Truffle Trees offers a range of investment products with options to buy one tree up to a hectare of 500 trees. An investment in the mid-range of 165 trees costs GBP 31,754 (USD 50,706) and Waddell expects it to generate GBP 184,544 (USD 294,677) worth of profit over a 15-year period. Forecasts are based on a maximum crop of 128g per trees at Euro 800 (USD 998) per kilogram. As a relatively new investment concept, Waddell claims his forecasts are conservative.

“A top tree—and ours are the best ever produced...can produce 10kg per year at full

AN UNDERGROUND INVESTMENT

[maturity],” he said.

Feaver, however, is wary of producing forecasts. “Production of truffles is not guaranteed,” he said. “It requires optimum growing conditions and some luck!”

Likewise, Paul recognises the obstacles for truffle production: “There is no known way to modify a tree in order to produce ‘better truffles’ but there are practices to make the tree potentially a more reliable yielder. There are also management methods that can increase quality, but this is due to preventing truffle rot and harvesting at correct ripeness.”

Though most well known, Europe doesn’t have the monopoly on truffle production, and plenty of activity is taking place on the other side of the world, too. Oak Valley Truffles in Western Australia is the largest truffle plantation in the Southern Hemisphere. Producing black truffles, Oak Valley Truffles is a similar concept to Truffle Trees, although investors become shareholders in the company rather than purchasing individual trees. Since there is no need to wait for the harvest, there is no minimum investment period.

Running for seven years, Oak Valley Truffles has already produces truffles, however Wally Edwards, managing director, has said that he is “waiting for truffle yields to increase” before producing projections.

Whilst he is confident of producing substantial commercial quantities of truffles, Edwards recognises the complexities behind their production.

“Growing truffles has two big barriers to entry… the knowledge base is limited… and you must get a number of factors correct.

These include site selection, soil type, water quality, fungus inoculation procedures and farm management techniques. The second barrier is the long lead time between establishing the truffle orchard and getting commercial truffle yields.”

As commercially cultivated truffle farms increase the supply of truffles to the market, there is a question as to how truffle will prices respond. Oak Valley Truffles is researching diversifying into truffle enhanced products such as oil, butter and honey, and as their production is counter cyclical to the northern hemisphere, Edwards believes this will shield the company from oversupply generated by greater competition.

Truffle investment is long-term; trees need time to mature and produce higher crops year-on-year. Due to the limited season and longstanding reputation within the food world driving global demand, truffles should maintain their value, exclusivity and the rapid turnover suggests its ability as a liquid asset.

Additionally, investing in truffles may appeal to ethical investors, and gives investors the

opportunity to invest in something different from the norm.

But it newness as an investment commodity needs to be taken into account, particularly as there are not yet solid profit records that investors can use to help calculate the risk level of their investment. Additionally, there have been a few high-profile disasters in both Spain and Australia, as unscrupulous or uneducated truffle purveyors peddled unsustainable investment schemes.

As Thomas said, “Growing truffles is not as easy as a lot of companies make out. There are a lot of challenges involved from choosing a suitable site, irrigation regimes, management issues, good quality trees, et cetera.

Investing in truffles can be very risky without the right expertise on board. With the right care, attention and guidance, the reliability is increased, but it really needs to be a very informed approach. Attention to detail and following decent protocols is paramount.

Another thing to keep in mind, is that even in good plantations typically only 60% of the trees produce at anyone time. Yields are easy to average out across a whole plantation, but assuming each individual tree will produce ‘x’ is incorrect and some will produce more and some will produce nothing.”

Still, the industry is one to watch, and the world waits to see if truffles truly are buried treasure.

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The difference between Arabica and Robusta coffees Though there are more than 100 species of coffee, only two are commercially cultivated: Arabica and Robusta. However, the plants’ key differences in everything from crop yield to caffeine content affect both your portfolio and your palate.

ROBUSTA ARABICA

Typical growing climate o

o

o

o

Arabica

15 -24 C, an altitude of 800 to 2,000 metres and rainfall of 1,500 to 2,200 millimetres per year

Robusta

18 -36 C, an altitude of up to 900 metres and rainfall of 2,000 to 3,000 millimetres per year

Crop yield Arabica

500 to 1,000 kilograms of dry beans per hectare

Robusta

1,200+ kilograms of dry per hectare

Largest exporters Arabica

Brazil, Columbia, Honduras

Robusta

Vietnam, Indonesia, India

Plant size Arabica

2.4 to 4.5 metres

Robusta

4.5 to 6.5 metres

Flavour Arabica

Smooth and sweet with fruity notes

Robusta

Strong, full-bodied and bitter, with overtones of grain

Caffeine content Arabica

.9% to 1.7% of each bean’s volume

Robusta

2.2% to 2.7% of each bean’s volume

V

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With demand increasing and supply in flux, should coffee be fueling your portfolio as well as your breakfast?

BY BECKY ELLIS

Demand Worldwide, more people are clamouring for a cup of Joe. Although demand is rising by just 0.2% per year in Europe, the entire continent of Asia is a potentially explosive growth area for coffee exports. During the last decade, consumer demand for coffee grew 4% annually in the traditionally tea-drinking region, compared to just over 1% in most developed nations, according to the International Coffee Organization, and coffee exporters are seeing strong interest from Indonesia, India, Korea and Thailand.

In China’s larger cosmopolitan cities like Shanghai and Beijing, coffee is already consumed at a rate comparable to cities in Europe, and the rest of the country is expected to follow suit within the next few years. “We are running our factories at up to 110% of capacity, and still, we cannot provide enough to the Chinese market,” Said Dang Le Nguyen Vu, owner of the Ho Chi Minh City-based coffee company Trung Nguyen Corporation.

Domestic demand is also increasing in the coffee producing nations of Columbia, Indonesia and Vietnam. The industry in Vietnam has a goal of raising Vietnamese coffee consumption from 1 kg per person per year currently to 5 kg per head, as is it is in Brazil.

Supply In 2013, Brazil, the world’s leading coffee producer and exporter, experienced its worst drought in 50 years, which, along with increasing consumption, left the coffee industry with

a global production deficit of approximately 10 million bags this season according to the International Coffee Organization, and finishing 2014 with its first supply deficit in three years. Stefan Uhlenbrock, a senior commodities analyst at F.O. Licht, told Bloomberg News that the shortfall will extend into 2015, and other analysts project a deficit through 2017.

Commodity and ETF performance When Brazil’s crop yields took a precipitous drop, previously middling coffee prices—which had fallen 20% in 2013—surged nearly 75%. Just when the drought conditions began to ease and the rally began to fade, the spread of coffee leaf rust—a parasitic fungus that decreases coffee fruit production and is currently impacting 53%

of Central American crops—reanimated the market. While analysts debate whether the market has peaked, the consensus is that these issues will result in some measure of a supply shortfall over at least the next year or two, which will set a floor underneath prices in the near term.

Investment options Coffee futures are traded on the New York Board of Trade, with one futures contract controlling 37,500 pounds of coffee. According to Zacks Investment Research, the initial margin required to trade one coffee futures contract is USD 4,900, and you must keep USD 3,500 as a maintenance margin per contract. Because coffee is quoted in 5/100 cents per pound, a 1 cent price change is equal to USD 375. “Weather conditions, political turmoil and changes in supply and demand help make coffee futures volatile, so only trade futures if you have a taste for risk,” the company advises.

Because of the lower price point for entry and lower exposure to risk, exchange traded funds (ETFs) are a more popular way to invest in coffee. The iPath Down Jones-UBS Coffee Total Returns (JO) and the Pure Beta Coffee ETN (CAFE) are the only two ETFs available that are 10% invested in coffee, and their methodologies are different. JO tracks just one futures contract at a time, and when the contract expires each month, it rolls the expiring contract into the next month’s contract. CAFE’s method for rolling forward expiring contracts is proprietary.

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around the world

A universally enjoyed drink, coffee is consumed in many forms across the globe, from frothy cappuccinos to instant iced coffees to snacks of chocolate covered beans. It's been consumed for hundreds of years and coffee purveyors are seen on street corners from Singapore to Seattle, but do you know these coffee facts?

Starbucks buys half a billion pounds of unroasted coffee beans each year, 3% of the world’s supply of coffee beans

Costa Rican farmers are barred by law from planting Robusta beans.

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Brazil is the world’s largest coffee producer, producing one-third of the world’s coffee and 75% of the world’s Arabica coffee variety.

Instant coffee was invented in Guatemala in 1906 by a Belgian man named George Washington.

The Dutch gave coffee the nickname ‘Java’ in the late 17th century, when they began the first European coffee plantation on the island of Java, which is now part of Indonesia.

Ethiopia is the birthplace of Arabica coffee, and has the highest per-capita coffee consumption of any African nation.

Vietnam produces 60% of the world’s Robusta coffee.

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IS MONEY GROWING FROM THE TREE OF LIFE? There are opportunities to profit from the coconut trade in Southeast Asia.

BY ALBERT FONTENOT

I

n Sanskrit, it is called kalpa vriksha—‘the tree which provides all of life’s necessities’.

In Brunei, Indonesia, Malaysia and Singapore, it is known as pokok seribu guna— ‘the tree of 1000 uses’. And, because it gives so much of itself for the benefit of so many, in the Philippines, it is known simply as ‘the tree of life’.

The rest of the world is just starting to discover what the denizens of Asia and the Caribbean have known for centuries: that the coconut is one of the most versatile plant species on the planet. Nearly every part of the plant has a useful purpose—the tree itself,

the eponymous fruit and even the husk that remains once the nutritional parts of that fruit have been removed.

Obviously, the coconut can be a food source, and has served as a staple in the daily diet of many peoples around the world. The plant and its derivatives are also used in cosmetics, medicines and as an alternative fuel.

Coconut wood is prized among aficionados of exotic building and craft materials, and the shells and husks have decorative and industrial applications.

The cultivation, harvesting, processing and export of the coconut and its derived prod-

ucts is a multi-billion-dollar business, and is a major driver in the economy of several Asian nations. Worldwide, there are approximately 12.28 million hectare devoted to coconut cultivation, resulting in an annual production of over 64 billion nuts. Many coconut-producing countries are endeavoring to ramp up production to meet demand, and are encouraging foreign investment in the process.

The Coconut Belt Although many Westerners picture the coconut as a Caribbean product, in point of fact, over 90 countries harvest coconuts, and close

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IS MONEY GROWING FROM THE TREE OF LIFE?

to 90% of the world’s supply is grown in Asia.

What’s more, over 74% of all coconuts come from just three Asian countries—India, the Philippines and Indonesia.

India: The coconut capital of the world India is the top coconut-producing nation in the world, harvesting close to 17 billion whole nuts. Most impressively, they were able to reach that lofty yield with a productivity rating of 26.34% and almost 11,000 nuts per hectare, both of which rank as the highest in the world.

They produce the most coconuts in the world, even though they currently utilise about half of the hectarage of Indonesia or the Philippines.

There are some supply-side challenges that have left the Indian market in flux in the last year, as irregular weather decreased coconut production, causing a spike in prices and slumping sales. Currently, the price of coconut oil will hover at approximately USD 2.5 per litre, a 100% increase over the 2013 price. The

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greatest challenge—and therefore, opportunity—faced by the Indian coconut industry is a lack of investment and a need for modernisation in the processing and shipping sectors. Luckily, India is one of the most attractive destinations for foreign direct investment because of a large manpower base, abundant natural resources and strong economic fundamentals.

The government of India allows qualified foreign investors, groups or associations to make direct investments in Indian equities and bonds markets, and some Indian states offer special packages, including land banks for industrial estates, subsidies for the purchase of machinery and special committees created to facilitate approvals.

Based on the government’s goal to significantly increase processing by 2025, 100% foreign direct investment is now allowed in the processing sector. Specific goals for 2015 include increasing the level of processing of perishables from 6% to 20%, raising the value addition from 20% to 35% and increasing In-

dia’s share in the global food trade from 1.5% to 3%.

The Ministry of Food Processing Industries has stated that to achieve these goals, there is room for more than USD 7.3 billion of private investment. To that end, the ministry has set up an investor portal on its website (foodprocessingindia.co.in) to guide potential investors through the process, including –the latest Attractiveness Survey, specific investment opportunities and detailed bureaucratic and regulatory guidelines. The Coconut Development Board, which sits under India’s Ministry of Agriculture, showcases current projects on its website (coconutboard.nic.in), and lists historic returns of between 15% and 28%.

Indonesia: The world’s largest coconut farms Indonesia devotes more land area to coconut production than any other nation on earth, almost four million hectares. The country produces 15.43 billion nuts annually, edging out the Philippines as the second highest produc-

IS MONEY GROWING FROM THE TREE OF LIFE?

ing country in the world. Together, Indonesia and the Philippines export 82% of the world’s coconut oil. Indonesia is also among the world leaders for exports of desiccated coconut, coconut-based activated charcoal—also known as activated carbon—and coir fibre, and is the largest exporter of shell charcoal on the planet.

The country also produces over 600,000 tons of coconut sugar every year.

Despite this production, however, there is a general consensus among industry experts that the potential of the country’s coconutbased industries is still virtually untapped. Even though it has the largest land area devoted to coconut production in the world, it seriously lags behind other regional peers and has room for improvement.

This lack of development is evident in the fact that a limited number of derivative products are currently made from the fruit itself in Indonesia. Critics point to the fact that the Philippines, which produces fewer coconuts overall, produces over 200 coconut derivatives, far more than their Indonesian rivals.

Under Indonesian law, any foreign direct investment must be set up as a limited liability company jointly with an Indonesian partner and approved by the Ministry of Law. Foreign capital is allowed at rates up to 95% and foreign-owned coconut plantations are permitted to cover a maximum of 25,000 hectares.

As incentives to encourage foreign investors to get in the coconut game, the government offers a relief of import duty, a tax holiday, freedom from value-added tax for machinery and agricultural commodities and a 35-year land right, in addition to various local governmental supports for infrastructure.

BKPM, the Indonesia Investment Coordinating Board, lists projects open to investment along with other information about investing in Indonesia on its website (www2.bkpm.go.id).

The Philippines and the “Tree Of Life” Until being recently overtaken by India, the Philippines was the largest producer of coconuts in the world. It still remains near the top, at last count producing 15.25 billion nuts on over 3.5 million hectares. Twenty-six percent of total agricultural land and 68 out of 81 provinces produce coconuts, and in 2013, the Philippines exported 1,953 million metric tonnes.

The Philippines remains the largest global exporter and producer of coconut-based products, tallying over 200 individual offerings, and is among the world leaders in the exportation of coconut oil, especially VCO, activated carbon, shell charcoal, coir fibre, coconut water, coconut flour and nata de coco—a gelati-

nous food product used primarily is Asia in drinks and dessert—and exports over half of the world’s supply of desiccated coconut.

The largest challenge faced by the Philippine coconut industry comes as a result of the super typhoon Yolanda in the Visayas region, which destroyed more than 34 million trees, or approximately 10% of the country’s total coconut tree count. This resulted in a 54% drop in coconut oil exports in the first quarter of 2014, and experts believe that this calamity will affect the worldwide coconut oil industry for the next three to four years. Already, prices are significantly higher than this time last year due to the shortage of plants.

The Philippines has been classified as a “tiger cub economy” and many estimates forecast that by the year 2050, the Philippines will have the 14th-largest economy in the world, the fifth-largest economy in Asia, and largest economy in Southeast Asia. However, to ensure future growth, most experts agree that further investments in infrastructure must be made.

The Davao Oriental province is the leading coconut producer in the Philippines, producing over one billion nuts annually with a crop area of over 150,000 hectares. The major products in this province are crude oil and copra pellets.

The province is actively encouraging foreign investment through the Davao City Investment Promotion Center (davaocity.gov.ph/dcipc), and has listed investment opportunities in the areas of coco-diesel processing, small-scale activated carbon processing, coir fibre and peat production, virgin coconut oil processing, coco-based food processing, integrated coconut processing and the manufacture of cocothemed gifts and housewares.

To facilitate investor opportunities, a number of initiatives have been launched, including the Center for Promotion of Investments (Cpoint), and the National Economic Research and Business Assistance Center (NERBAC).

The services of the two agencies will be to streamline business registration and licensing while promoting investment, investor assistance and facilitating all available incentives.

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THE PLANT OF A THOUSAND USES

A

quick sampling of coconuts' possible uses shows just how versatile the ubiquitous plant truly is. The kernel produces the fresh green and dry nuts, the copra (the “meat”) and the coconut juice. From these, a host of other products can be derived, including desiccated coconut for use in cooking; coconut vinegar, yogurt, milk, cream and jam; and coconut water and oil, which have become billion-dollar industries in their own rights.

Among the foodstuffs, coconut milk has risen dramatically in popularity. In 2010, Thailand produced just over 84,000 metric tons of coconut milk, but by 2012, that volume had risen to over 438,000 metric tonnes.

Among the foodstuffs, coconut milk has risen dramatically in popularity.

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ACTIVATED CHARCOAL

The shells have long been used for decoration and handicrafts, but more contemporary uses have also been found. Properly processed, coconut shells can also produce activated charcoal, which makes them ideal for use in water filtration systems, and the demand for coconut shell charcoal has skyrocketed in recent years.

In the three years from 2007 to 2010, Indonesian exports of coconut charcoal increased from 610 tonnes to just under 187,000 tonnes.

At the same time, the price for activated charcoal from the Philippines rose from approximately USD 1,100 per metric ton in 2007 to just over USD 2,000 in 2012. The United States alone imports approximately 70,000 metric tonnes of activated charcoal a year.

Activated charcoal isn’t just used to filter water; it’s used in cooking, too. Long featured in Asian recipes, it has made its way into the menus of five-star pastry chefs as well as fast food restaurants. The health food industry is also marketing coconut-derived activated charcoal as a “detox” aid, which can be consumed in juices or smoothies or in capsule form. It purportedly removes toxins from pesticides, pollution and drugs; reduces bloating; lowers cholesterol; and cures flatulence, although there is little medical research to support these claims. Skincare companies, too, have started using activated charcoal in their products, claiming they can draw out toxins.

COIR FIBRE

Coconut fibers, also known as coir, can be used as an organic textile for items such as brushes, packaging, mats and mattresses.

Currently, the Ford Motor Company is researching how coir might be rubberized and used as an environmentally-friendly alternative to plastic. Coir pith can be used as a planting medium or an organic fertilizer and can aid in moisture and soil conservation.

The coir industry is very prominent in India, the Philippines, Indonesia, Thailand and Vietnam. The most common export destination for coir fibre is China, which had a six-year average of 200,000 metric tonnes between 2006 and 2010. In 2009 alone, China produced 1.3 million coconut fibre beds a month. China’s need for coir fibre has grown to approximately 450,000 metric tonnes per year, with an anticipated growth rate of 10% to 20% annually.

The world demand for coir fibre is estimated to be approximately 700,000 metric tonnes per year, versus a supply of only 500,000 tonnes. Currently, the price for Indonesian or Indian raw fiber is approximately USD 275 per metric tonne.

THE PLANT OF A THOUSAND USES

COCONUT WATER

COCONUT OIL Produced in a number of ways, coconut oil has become a highly sought after and traded commodity with a host of uses.

As a food source, coconut oil is desirable because it oxidizes much more slowly than many other edible oils due to its high saturated fat content. Coconut oil resists rancidification and can be stored for up to two years without spoiling.

For health purposes, edible coconut oil is composed of 50% lauric acid, which may create a favourable blood cholesterol level in addition to having antifungal, antimicrobial and antiviral properties. Because of its chemical composition, virgin coconut oil is considered to be a better alternative than other partially-hydrogenated vegetable oils.

The United States imported 76,800 metric tonnes of lauric oil in June 2014, a 10.5% increase from the previous year, with coconut oil accounting for approximately 71% of that total.

Coconut oil is widely used for cooking purposes, especially in South Asian cuisine.

More recently, virgin coconut oil has been popularised by vegans and individuals preferring natural foods. Other common culinary uses include non-dairy creamers, popcorn flavouring and confections.

Many tropical island countries, includ-

ing Samoa and the Philippines, use coconut oil as an alternative biofuel, powering vehicles and generators. Even countries that do not currently use coconut oil as a fuel source are testing its potential use as an engine lubricant.

Further industrial purposes for coconut oil include use as a raw material when manufacturing detergents, foaming agents and emulsifiers. Certain herbicides can be made from the acids derived from coconut oil.

As a personal care product, coconut oil is widely used in cosmetics, skincare products and soap, as well as shampoos and conditioners. There are indications that derivative products have a positive effect on a conditions ranging from Alzheimers to tooth decay, although more research is needed.

Economically, coconut oil ranks as the ninth most-used major vegetable oil in the world. Virgin coconut oil (VCO) occupies a high-value niche market that is rapidly expanding. In 2001, the Philippines exported only two metric tonnes of VCO; in 2012, that had swelled to 6,002 metric tonnes. Prices of VCO from the Philippines ranged from USD 3,500 to USD 4,600 per tonne.

The major export destinations of virgin coconut oil are the United States, Canada, the United Kingdom, Germany, Australia, New Zealand, Lithuania, Finland and Russia.

One of the fastest-growing coconut-related products is coconut water, a refreshing and nutritious drink that is virtually ubiquitous in countries where coconut trees are indigenous.

Due to its high potassium and mineral content, coconut water is often marketed as a natural energy drink, low in fat, carbohydrates and calories. Its touted health benefits include restored alkaline balance, optimized blood pressure and the prevention of both urinary tract infections and the formation of kidney stones.

It is important to note that contrary to apocryphal myth, coconut water is most definitely not an acceptable substitute for human plasma. During World War II, coconut water was given intravenously when medical-grade saline solutions were in short supply. In reality, modern medical research has shown that the practice could cause unsafe elevations in potassium and calcium.

In Brazil, which boasts the world’s fifthbiggest population, coconut water accounts for approximately three-quarters of total beverage sales. Other major importing countries include Japan, Australia, the Netherlands, Germany, the United States and Canada. The United States in particular seems to be the prime global export target for producers of coconut water. In 2012, the U.S. market was valued at USD 350 million, and the American industry is believed to still be in its infancy. Worldwide, the coconut water industry has been growing at an annual rate of 26% since 2007, which is reflected in the dramatic rise of coconut water exports by producing countries. For example, in 2009, the total value of coconut water exports from the Philippines was only USD 368,000. By 2011, those exports had reached a value of over USD 15 million.

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ADVERTORIAL

A Growing Investment

O

ne of the fastest growing investment opportunities in the Asia Pacific region is investment in commercial plantation and farming industries.

One of the success stories in the industry is Asia Plantation Capital (APC), which owns, manages and operates a range of commercial plantation and farming businesses across the Asia-Pacific region as well as globally.

Smart and sustainable According to Mr. Barry Rawlinson, chief executive officer of Asia Plantation Capital investment in the commercial plantation business is attracting considerable interest due to three primary factors: ❶ Revenue Increasing worldwide demand for wood will result in further price increases.

Because of long growth cycles, the supply of tropical hardwood cannot

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be expanded rapidly. In the last decade the price of tropical hardwood has increased more than 50% and future increases are expected. ❷ Risk distribution Historically, wood prices do not follow general developments on stock markets. Therefore, investing in wood can contribute markedly to portfolio diversification. ❸ Inflation resistant An investment in forestry is immune to inflation because periods of inflation are generally coupled with a strong increase in the price of wood.

“Forestry investments, agricultural investments and plantation investments have changed over the last decade to become part of both large and small investors’ portfolios. We’ve seen opinions on this type of investment change from being considered an alternative investment to more mainstream, and now investments in forestry are an essential

ADVERTORIAL

component of many institutional and pension growth funds,” says Mr. Rawlinson.

The Asia Plantation Capital Group acts as plantation and agricultural investment managers and advisors to several private equity funds that focus on the forestry, farming and renewable energy investment sectors. Plantation and biological assets currently owned and or under managed on behalf of private clients exceed USD $400 million and are expected to rise to over USD $1 billion over the next decade.

In, September 2014 , Asia Plantation Capital announced a significant rise in turnover for the 2013 financial year, posting a new revenue peak of USD $53.5 million. The company also passed the USD $6 million milestone in repayments to stakeholders on the company’s agroforestry plantation projects last year.

This figure is projected to continue rising as more plantation species reach maturity.

Diversity in diversification The continued harvesting and production of oud (agarwood oil) and associated oud products from the company’s managed agarwood plantations is also expected to yield a profit, and APC is developing opportunities for agarwood crops in Malaysia. With the value of oud oil, the oil that comes from the specially treated wood of the tree, 1.5 times

higher than the value of gold, the sustainable agarwood industry is well established in Asia and APC is actively looking to bring their advanced plantation systems to Malaysia.

“Gaharu is not new to the region and we see many opportunities for its growth in Malaysia. As a leading company in plantation management, we ensure that our agarwood is harvested ethically and sustainably,” said Steve Watts, chief executive officer of Asia Plantation Capital Berhard, speaking at the recent Johor Biotech Conference. “Not only that, we are one of the very few plantation companies that has its products certified by CITES, the Convention on International Trade in Endangered Species of Wild Fauna and Flora, to legally trade in agarwood,” continued Watts.

Agarwood—more commonly known as gaharu in Malaysia and Indonesia—comes from the aquilaria tree, a species native to Southeast Asian countries like Malaysia, Thailand, Cambodia, Vietnam and Indonesia.

What makes it so highly sought after is the rarity of the fragrant resin contained within, as it is only produced when the tree is affected by or, as is the case of trees managed by APC, treated with a certain fungus.

Oud oil and oud wood chips have been an integral part of Middle Eastern cultures for centuries, where it is not only used in

fragrances but wood chips are also burned as incense in homes. In China, agarwood sculptures are common pieces in homes, and wearing bracelets made of agarwood beads is quickly becoming a trend, with recent record auction prices being achieved in China for agarwood pieces. Globally, oud is now a major component in the fragrance and cosmetics industry, used by virtually all of the world’s leading luxury fragrance brands.

APC’s partner fragrance company, Fragrance Du Bois, recently had one of its perfumes shortlisted as a top 10 finalist in the Art + Olfaction awards, a fragrance award in Los Angeles, beating out competitors from around the world.

The health benefits of agarwood have long been known and used in Traditional Chinese Medicine (TCM), for instance, to treat the digestive system, relieve spasms and pain, as well as treat tightness in the chest, abdominal pain, vomiting, diarrhea, skin infections and asthma, and recent research has shown that agarwood may have even more medicinal benefits. Agarwood oil has been found to have sedative effects, while a component of agarwood shows promise for use in the development of an anti-cancer drug. Antioxidant properties have also been found in the extract of agarwood leaves.

All species of the aquilaria tree are clas-

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ADVERTORIAL

sified as endangered species under CITES due to extensive and illegal logging and harvesting for oud oil, but APC’s oud oil and woodchip products are certified legal under the CITES agreement, which ensures ethical and legal standards are upheld in the planting, growing and harvesting of agarwood and oud oil.

Moving forward, Asia Plantation Capital has plans to explore further opportunities by acquiring plantations or partnering plantation owners to develop agarwood in Malaysia. Over the last 10 years APC has developed advanced proprietary inoculation systems which have been implemented in Thailand, Cambodia and India to proven results and a new patented system which, over a longer time frame, can stimulate resin production throughout the entire tree.

Investors may also be interested in the growing market for bamboo across Asia and the world. Asia Plantation Capital’s bamboo plantations have been in operation since early 2013, producing consistent yields of edible shoots and future diversification into bamboo-based biomass and flooring is planned.

Asia Plantation Capital continues to aggressively invest in its plantations, implementing the latest processing and production systems technologies. The company leverages leading engineering specialists and researchers in Thailand to advise on improvements across all sectors of the company’s plantation operations; continuing its policy of working with various Universities on key research projects related to its activities.

“Asia Plantation Capital continues to deliver outstanding results for our clients and partners. Despite many challenging factors within the sector, we have consistently continued to grow and strengthen our position in the market. Our philosophy of constantly investing in our plantations projects through the introduction of the latest proven techniques and technology, together with strong operational management, has reaped substantial rewards over the years,” said Mr. Rawlinson. “As we find new opportunities and markets, we will ensure that what we plant is sustainable, produces end products that are of high value and contributes to the community.”

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Giving back

In addition to achieving profits for investors, working closely with and supporting the local communities in which it operates is a core principle of APC, and it provides social and cultural support, as well as investment, to help these communities move away from deforestation and illegal logging—previously seen as a main source of income in some regions of Asia. The company actively promotes the use of certified wood as the best way of preventing deforestation, protecting biodiversity and combatting poverty in the tropical rainforest regions. For the yachting sector, which strives for excellence and which is already involved in environmental efforts, this is also a way of ensuring that no wood from illegal logging is used. Asia Plantation Capital currently has projects at various stages in Thailand, Malaysia, China, Laos, India, Cambodia, Sri Lanka, Mozambique, Gambia, North America and Europe.

For further information, please contact: Adrian Heng Group Marketing Director Asia Plantation Capital Tel: +65 6222 3386 Steve Watts Chief Executive Officer Asia Plantation Capital Berhard Tel: +607 207 0276

www.asiaplantationcapital.com

WHAT’S THE BEST PIECE OF INVESTMENT ADVICE YOU'VE EVER RECEIVED? Position is more important than price.

MICHAEL WAITZE Bangkok-based venture capitalist Michael Waitze, partner and managing director at Metaliq Growth Partners, talks about investments, entertainment and living the good life.

GUILTY PLEASURE That is easy. A week alone on a beach.

PLAYED LOUD There are so many great musicians, it is almost impossible to choose a favourite. However, when I want to listen to something that I know will make me smile, it is Bruce Springsteen’s classic album, Born to Run.

WHAT MAKES YOUR LIFE THE GOOD LIFE?

MUST HAVE APP Apple’s Podcast App. I am a voracious consumer of Tech focused podcasts. My favourites are ATP.fm– Accidental Tech Podcast –and The Talk Show with John Gruber.

ON THE BOOKSHELF Zen and the Art of Motorcycle Maintenance, Robert Pirsig…

While this is an inexact examination of modern philosophy, I read it to make me reassess my own values and morals.

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I sometimes feel like I am one of the happiest people alive.

My life is good because I have been fortunate to meet so many high quality people and build experiences with them.

Life is better when you get to share its experiences with others that you love and trust.

IN THE DRINKS CABINET A very good friend of mine says about his love for wine, “All roads lead to Burgundy.”

I find it hard to argue with that.

IN ADDITION TO A STRONG CONCEPT AND TEAM, HOW DO YOU DECIDE WHICH COMPANIES TO INVEST IN? I need to feel a personal connection with the management team and I need to be able to trust them. Failure is acceptable but dishonesty is not. I also want to root for someone that has a passion to succeed.

Ideas are nice, but execution is paramount.

(US) The California Bureau of Real Estate has not examined this oering, including, but not limited to, the condiion of tle, the status of blanket liens on the project (if any), arrangements to assure project compleeon, escrow praccces, control over project management, racially discriminatory praccces (if any), terms, condiions, and price of the oer, control over annual assessment (if any), or the availability of water, services, uuliies, or improvements. It may be advisable for you to consult an aaorney or other knowledgeable professional who is familiar with real estate and development law in the country where this subdivision is situated.

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