The Association of South East Asian Nations (ASEAN) comprises ten diverse nations with a myriad of languages and cultures, and has been around since 1967. In November 2007, the ASEAN leaders adopted the ASEAN Economic Blueprint – a master plan to guide the integration of the regional economies into a single market and production base – and agreed to the establishment of the ASEAN Economic Community (AEC) by 2015. If this is achieved, it provides businesses with seamless access to a market of over 600 million people – 8% of the world’s population – living in a land area of 4.46 million sq km. From the real estate perspective, this integration could improve regional connectivity in terms of investment in roads and rail transport networks, and further the growth of the local urban development and real estate markets.
The AEC goal of enhancing the mobility of skilled labour will be the catalyst for the exchange of best practices across ASEAN. Urban design and development will benefit from these exchanges. Greater innovation is expected as the mature cities move up the value chain, as rising pressure from limited and costly land and labour resources force these mature cities to increase their productivity in terms of construction processes and building efficiency. The construction industry will rely more on labour sourced within rather than outside ASEAN.
The primary concern of companies and investors is to maximise profits and reduce costs. Therefore, areas with lower production costs will draw lower-end production away from costlier regions. The recent outflow of industrial production from China into the emerging markets of Myanmar, Vietnam and Cambodia and the outsourcing of backroom support functions from Singapore to the Philippines are some examples. The industrial assets in higher-cost regions such as Malaysia, Thailand and Singapore will undergo adaptive reuse if not redevelopment, focusing on providing higher value-added products and services while the new industrial estates in the Cambodia, Laos, Myanmar and Vietnam will support lower-end production. As more manufacturers relocate to ASEAN, the demand for industrial and logistic properties should consequentially increase.
Should such a single production base prove successful, the elimination of tariffs on goods and services within ASEAN members will increase the region’s overall economic growth and wealth. The next change could come from the shifting consumption pattern accompanying higher disposable income. There will be more manufacturing and services as investors take advantage of the tariff free region and consumption within ASEAN rises. We already see this happening, especially in Indonesia. The retail market is undergoing a transformation, as consumers armed with higher income are demanding more of a lifestyle-centric shopping experience.
Lastly, with greater ease of capital flow and investments, the level of real estate investment activity is expected to rise in the untapped South East Asian markets as investor appetite grows. The level of capital flow in ASEAN is also likely to rise as and when regulatory barriers are removed.
