When it comes to real estate, the adage "location, location, location" could not be more accurate; it's not just a catchy phrase; the importance of location in real estate investment cannot be overstated.
This post delves into the locational aspects of the project, and what it means for its potential value and implication for investor returns by focusing on "location" factors by refining our scope from the region, to the country, and finally, the city of the project:
Substantial potential for growth within the ASEAN region, where recent investment has been focused on strengthening supply chains for their "China+1" strategy. According to the ASEAN Investment Report[ii], "Geopolitical tensions and pandemic-driven disruptions have triggered a wave of supply chain restructuring, favouring ASEAN as a relocation hub. This environment motivates investors, including those already in ASEAN, to expand capacities, establish stronger regional footholds and reinforce supply chains". Of further note, FDI investments from intra-ASEAN sources were the 2nd largest source of FDI at USD28 billion (US was largest at USD37 billion) in 2022.
This has resulted in Foreign Direct Investment ("FDI") in ASEAN region surpassing China in 2022 for the first time in a decade, with GDP growth set to outpace China in the coming decade, according to the Southeast Asia Outlook 2024 – 34 Report[iii], jointly published by DBS, Bain&Co and Angsana.
Singapore is the focus for substantial investment, where according to JP Morgan, "Building on centuries as a strategic shipping hub, Singapore is now a valuable digital hub as well. Businesses are drawn to Singapore’s independent government, strong legal system, sophisticated digital infrastructure, and deep talent pool"[iv].
Strong “pull” factor for FDI via regional integration (i.e., ASEAN Economic Community, Regional Comprehensive Economic Partnership), which offers opportunities for firms to access rapidly growing markets and natural resources, scale up operations, enjoy locational advantages, and strengthen regional value chains[v].
Largest scale within the context of the SEA region constituting 36.3% of the region's GDP at USD1,371 billion for 2023 and is ranked #1 in the region according to World Bank[vi], with the 4th largest population in the world[vii], making it an attractive investment destination.
Poised for growth - While Indonesia has traditionally offered a strong value proposition for manufacturing industries vis-à-vis Singapore due to the substantial cost differential of labour and rental, it has been historically hampered by transparency challenges; with Indonesia seeking to become an OECD (Organisation for Economic Co-operation and Development) member by 2027[viii], adoption of OECD standards will provide investors with greater transparency and internationally recognised standards being deployed.
Viable alternative for commercial and real estate demand from Singapore, given its location neighbouring Singapore, 20 km (12 miles) off Singapore's south coast, offering substantial cost benefits for labour-intensive industries historically. With the implementation of its Special Economic Zone ("SEZ")[ix], it has further increased its competitiveness in the aviation, electronics and data centre industries[x]. The top 2 investors in Batam in 2023 were Singapore and China[xi], with Indonesia's upcoming their membership in OECD potentially attracting interest from western developed nations as well.
The Batam principality has surpassed the average economic growth of the country at 6.84%, exceeding the national average growth rate for Indonesia of 5.31% in 2022[xii], ahead of Indonesia's encouraging growth and is expected tailwinds in the coming years.
A property's location affects its value, rental income, and how well it holds up during market changes; understanding location factors and researching local dynamics help investors make smart decisions that boost returns and reduce risks.
Batam's location stacks several success factors in its favour - having higher economic growth than a country with an already high development momentum, within a region that is a key focus for investment.
This post constitutes the author's personal opinions, and should not be taken as a recommendation or advice. Kindly consult your financial, legal, tax, or any such other advisors for your specific requirements, accordingly.
