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Mekong Momentum: Is Laos Real Estate Waking Up?

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Long regarded as one of Asia’s least dynamic property markets, Vientiane is now giving lie to its sleepy reputation. But is the city equipped to service a full-scale boom?

Vientiane is a city that has never lacked in tropical charm. Monks in saffron robes flit between gold-spired temples, while the mighty Mekong River provides an impressively exotic centrepiece. Yet perhaps the most striking visual element — at least to long-term residents and observers who know it as a resolutely somnolent backwater — are the cranes that have begun to dominate the skyline.

Laos has traditionally taken pride in its aura of laid-back laziness. Indeed, many have joked that Lao PDR — the country’s official designation — stands for Lao Please Don’t Rush rather than Lao People’s Democratic Republic. But that sleepy image is taking a battering amidst the building frenzy currently underway in the country’s capital. Numerous shopping malls are going up around the city, most notably the Vientiane New World project, a mix of shops, restaurants and offices stretching along the Mekong riverfront.

Away from the downtown area, meanwhile, new arrivals and real estate initiatives continue to leave their imprint at six Specific Economic Zones (SEZs), sites implemented by the government to attract investors. Incentives here include exemption from duties and taxes on equipment and construction materials and reduced income taxes, effective carrots when attracting big-name foreign companies such as Japan’s Nikon and Toyota, both of which have factories in Laos.

So what are the factors that have spurred the Vientiane market into such an unfamiliar burst of energy? The advent of the ASEAN Economic Community (AEC) is one driver, so too are international summits that will bring US President Barack Obama, Chinese President Xi Jinping and a host of other world leaders to visit over the coming few months.

“There have been a lot of changes in the city, most of them positive,” says Houmphan Saiyalath of RentsBuy.com, a leading real estate portal in Laos. “Outside investment is visibly upping the standard of living and the government is making progress in improving infrastructure.

“Also, local buyers are finding it easier to obtain mortgages which is also opening up the housing market to many.”

As the Lao economy has opened up, several big international banks such as Malaysia’s Maybank have moved in. Increased competition between banks has brought about a more favourable lending climate for consumers.

Anyone who has paid attention to Laos over the past decade or so, however, will know that these drastic changes have long been on the cards. The construction surge comes on the back of a decade of 7-8 percent annual economic growth that has seen the national economy double in size since 2006, according to the Asian Development Bank.

Foreign Direct Investment (FDI), mostly from neighbouring countries such as Vietnam, China and Thailand, drives much of this growth. Small and land-locked, Laos has traditionally been overlooked as a hub for trade. Now, though, its location at the crossroads of regional powerhouses has given it a leg up. The Laos government is promoting a slogan of “land-linked” to turn its location to its advantage, pushing itself as a transit country for land-based trade.

Investors certainly appear to be biting. According to data from the Laos’ Investment Promotion Department, the top nine foreign direct investment (FDI) nations ploughed USD1.27 billion into the country’s coffers in 2015. FDI topped USD18 billion between from 2002 and 2012, with China, Thailand, and Vietnam the leading sources of capital followed by Korea, France, and Japan.

All this investment is key to the government’s ambitions to achieve “middle income” status for the country by 2020.

Yet beyond this surface sheen is another, less uplifting, story. Environmentalists balk at Lao complicity in big damming projects, a major source of FDI, which are displacing peasant farmers and changing the Mekong River biosphere forever.

That apart, Vientiane’s construction boom, which, aside from the glut of high end malls, encompasses championship golf courses, luxury real estate, is likely to be of scant value to the vast rump of the country’s population.

Although Laos has made admirable progress in poverty alleviation (rates have declined from 46% in 1992 to 23% by the end of 2015), there’s more than a reasonable possibility that supply will outweigh demand when it comes to luxury shopping or investing in upscale real estate.

“Lao people make up only about 40 percent of my clients,” Nakadej Invihan of Saiawardz Real Estate, a Vientiane-based broker was quoted as saying in a recent report by Nikkei. “The rest are foreign, maybe 20 percent Chinese, 10 percent Korean, Vietnamese, Westerners.”

He adds that land prices in Vientiane have gone up by about 30 to 50 percent in the last two to three years, and expects this trend to continue.

“There’s definitely a clear danger of supply outweighing demand if construction of mid-to-high end units continues at its current pace,” concurs Saiyalath.

With prices running at up to USD2,000 per square metre in the city centre, it is clear that Vientiane can no longer be considered a stranger to Asia’s property gold rush. Whether that benefits the many or just the few is something that remains to be seen.

Source: Property Report (Duncan Forgan)