The Growth of Second Home Ownership in Asia Pacific

Spending time staying away from your primary home is not a new phenomenon. After all, people across the globe have been taking holidays or vacations to popular destinations for years.

Whilst there is no absolute definition of a second home, across all societies, people have, for many years, invested in additional homes that are neither their regular residences nor meant for steady income streams. However over time the nature of second homes has evolved and many now do produce income streams during the periods when the owner is not in residence or, even better, produce capital gains owing to appreciation in values.

Second homes can, therefore, be said to be owned or partly owned accommodation which is not intended to be the primary residence of the owner. In the past, it may have been a place to vacation or to escape the pressures of city living, but with the seismic lifestyle changes brought on due to the pandemic, the actual purpose of acquisition may have changed.

The trend of buying additional homes, whether for self-use or as investments, was typically confined to the more financially secure sections of the population. Yet, advancement in technology and the effects of the pandemic have drastically changed the sources of demand across Asia.

Some of these demand drivers include:

• greater acceptance of work from home (“WFH”) or “from anywhere”—in some cases this may have been initially involuntarily as many people wished to continue to separate their work and home lives. However, as pandemic associated restrictions tightened and WFH became a necessity, people began to look at acquiring second homes with more space or away from cities. Indeed, “hybrid living” became the catchphrase of the day;
• technological advances meaning that communications via virtual meetings, zoom conferences could for the most part replace the need for face-to-face contact an hence the associated need to travel to meetings;
• low interest rates for home loans—in fact, some developers of higher end second homes  have also been able to arrange funding for buyers;
•  many people accumulated savings during the pandemic which they may not have otherwise made—fewer trips for vacations, lower spending as luxury goods shops were closed and so on;
•  induced demand thanks to the increasingly better organised and more professional delivery of second homes properties—some with an established brand name and
• on-line accommodation booking platforms such as AirBnB helped open new destinations for travellers who subsequently decided to either stay longer or acquire property in one of the new  places they had discovered;
• aspirational buyers who desire for the accompanying social status of owning a second homes, possibly in a prestigious, branded development in a favoured location;
• rebound in domestic and regional (“closer to home”) tourism as the pandemic recedes.

As with any product, the nature of second homes on offer has evolved over the years—from the initial inception some 50 years ago as timeshares, to fully fledged co-ownership situations.

In fact, in the last 15 years or so, there have been noticeable changes in the emergence of an organised market with better security of tenure for buyers for second homes. Not only that but more and more reputed developers and operators have committed to the second homes sectors, now offering curated products at various price points.

Other distinguishing factors in the market have been additional property management services for regular upkeep and maintenance of properties, concierge services, full security, customised landscaping, bespoke interior designing and so on.

In fact, one of the key changes has been in the way new technology has continued to alter what is possible for both owners and renters. Accommodation can be searched for, let and managed in faster, cheaper and more effective ways, which has helped to generate a new breed of second home owners.

Such owners are more likely to want an income from their residential assets at home and abroad, as well as the lifestyle pleasures of owning an additional home and this transition to an approach focused on capital appreciation and rental yield has been significant.

Joint or shared ownership of second homes in the past was usually via timeshare or fractional ownership.

However the emergence of deeded co-ownership of second homes with a key difference being in the actual “ownership” of the asset.

In designated co-ownership projects, a co-owner has rights to possession, to use and to dispose of the interest in the property they own. The legal interest (estate) is co-owned under a legal joint tenancy. This means that all co-owners have a legal right to occupation and use of the property, and holding the property on trust for themselves and all other co-owners.

Typically, the developer or sponsor of a co-ownership project will set up a property-specific LLC setting out details regarding the management, operation and voting procedures for each home. This will also help address the revenue, tax, legal, and financial obligations which may be different for each co-owner.

Buyers can acquire an ownership interest, ranging from 1/8 to 1/2 in a luxury villa in one of the world’s most popular destinations, where occupiers can enjoy sunshine, swimming, surfing or even skiing, depending on the location!

Preferred types of properties

Of course, all buyers of second homes have their own personal requirements in terms of the type of second homes (see above) but there are several common requirements:

• a spacious, comfortable home which serves as an ideal place to relax, unwind and rejuvenate;
• well-managed by a professional operator, secure;
• a menu of additional services on offer, including access wellness or health related services;
• easily accessible and definitely well connected (except for those places where the aim is to go off-grid!);
• in or close to an area of natural beauty, ie beaches, picturesque countryside etc;
• likely to attract short term-tenant for the period when owner is not in occupation;

Locational preferences

Whilst early movers of the second home concept may have been the US, European countries and Australia, the SE Asian region is a location which has whole-heartedly embraced the second home phenomenon, Perhaps, not surprising given the increasingly affluent status of the region plus the sheer numbers of people (think China, India, Indonesia) and the growing propensity for leisure travel.

Coupled with greater connectivity, lifestyle changes and awareness of the myriad of attractions in the region, the SE Asian region is one of the fastest-growing property regions with buyers from across the globe looking to invest in a second home which can be used for personal and investment gain.

This increased demand has, as you might expect, led to surging prices in many of the SE Asian real estate investment markets, but also several major new entrants such as the Selo Group who are known for quality products, professional management and membership arrangements where buyers can enjoy access to other similar properties across the world.

SE Asia is a widely diverse region with an amazing selection of countries offering every kind of experience and amenities. Amongst the eleven countries which make up the region, Thailand, Indonesia, Malaysia, The Philippines and Singapore are five potential buyers usually think of for second homes, although up and coming powerhouse Vietnam, as well as Brunei, Myanmar, Cambodia, East Timor,  and Laos each all have their own impressive mix of history, geography, and cultural landscape—and great potential for development of second homes.

Sustained demand for second homes in SE Asia, especially in emerging markets, is likely to continue to drive value growth at greater rates than in established US or Australian markets.

 The huge ongoing demand means that supply cannot keep pace, and ever evolving product enhancements will prove decisive in the decision making. As a final point, in some ways, values of real estate in Asia have a long way to catch up, so the potential for gains in emerging markets vs the established markets is so much greater.