While not ratified yet, members of TPPA will reap benefits in real estate arising from increased demand for its goods and services due to lower or zero tariffs.

The Trans Pacific Partnership Agreement (TPPA) has far-reaching consequences in almost all aspects of commercial life, including real estate.

PrintIn early October 2015, 12 countries in the Asia Pacific region signed this agreement which ranks as the biggest trade agreement in history – signatory countries account for 40% of total global output.

While the treaty must still be ratified by each and every party to it, its initial passage represents a giant moment in the integration of economies on each side of the Pacific. This article must be qualified, however, that since negotiations between countries were done mostly behind closed doors, the impacts discussed here are as much speculative as they are real, and only the passage of time can indicate whether these scenarios painted will come to pass.

Four countries in the ASEAN region are among the signatories of the agreement; Brunei, Malaysia, Singapore and Vietnam, with additional member countries interested in joining the free trade area in the future.

In this article, we will look at who are the biggest beneficiaries in the region, the effects the treaty will have on intra-regional trade, as well as the impact on investment opportunities in non-TPP signatory ASEAN states because of this landmark trade deal.

Thailand could see its exports affected

Thailand is one of the countries that could see its exports affected if it remains excluded from the TPP.

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A new study by the Trade Negotiations Department within the Commerce Ministry concluded that the country should join the pact, while carefully considering the areas in which the country needs to improve its competitiveness.

While the treaty has not yet been ratified, Thailand in fact already has a pressing need to join given that its signatories include Thailand’s main competitors in the region.

This incentive is compounded by the fact that the country has seen its slow growth trail other countries in the region due to its fragile democracy.

Vietnam, an overall winner of the TPP agreement

Vietnam is being touted by many as the overall “winner” of the TPP agreement.

The opening of US and Japanese markets present enormous opportunities for the country’s booming garment and apparel industry, which has the potential to act as a major magnet for FDI into the economy.

Most of this investment would likely be diverted from other countries, such as China and Cambodia.

The fishing industry will also benefit from the elimination of import taxes on shrimp, squid and tuna. In fact, with 18,000 tariffs being slashed across the 12 TPP participating countries, exports are expected to increase by 38% within a decade. The increased exports coming out of an overall low wage economy will boost the country’s GDP by 11%, or USD36 billion, as more factories move to the country.

Meanwhile, the elimination of import taxes on pharmaceutical products could hurt local players. The current average import tax stands at 25%, and eliminating them would lead to stiffer competition between domestic and foreign pharmaceutical players.

While this could hurt local players, it could also benefit local consumers. The agriculture and livestock industries could also struggle to compete against the TPP’s industry behemoths, such as the United States or Canada.

Malaysia could become the second largest winner after Vietnam

Authorities in Malaysia have cautiously welcomed the TPP – it is believed that the agreement will provide some gains and some losses. Moreover, not all of the details of the agreement have been made public yet.

Among the industries that stand to benefit from the TPP are electronics, chemical products, palm oil, and rubber. On the other hand, the TPP may hurt state-owned enterprises which benefit from weak competition for government contracts. This legacy has the potential to create opposition to the agreement both within the business community and interest groups within the government – tension which the country can ill afford given the ongoing political crisis.

However, according to Credit Suisse, a global bank, Malaysia will become the second largest beneficiary of the treaty after Vietnam.

Malaysia could see an additional five per cent increase in GDP by 2025 through being part of the TPP. As a highly export-oriented economy, where goods and services account for 80% of GDP, Malaysia stands to gain much from lower tariffs and increased access to larger markets. This preferential access to partner markets could present the country with a competitive advantage over those ASEAN members not party to the TPP.

What is the impact on real estate?

The industrial and logistics sector will be the major and immediate beneficiary of the TPP. CBRE believes the following markets will be affected:

Vietnam: Higher demand for industrial land and factories as low-cost manufacturing shifts to Southeast Asia.

Australia and New Zealand: Stronger demand for agricultural land and logistics facilities, with the projected increased output of agricultural products from Australia and New Zealand.

Japan: Manufacturing and logistics will benefit from the Japanese exports that meet the TPP requirements for intermediate parts sourcing according to the Rules of Origin, although the overall benefit may be limited as Japanese companies have been manufacturing goods overseas for some time.

Thailand and Indonesia: Weaker demand for manufacturing facilities as production becomes less competitive in these countries. Countries within the TPP such as Vietnam and Malaysia will offer manufacturers lower tariffs and streamlined regulations.

Singapore: The expansion of logistics, chemicals and electrical service companies will support office demand as the city remains a regional hub for multinationals.

There will be less protectionist measures for unfair real estate practices of state-owned property development companies purchasing government lands at low cost.

Financial regulatory authorities may be prevented from increasing property cooling measures such as imposing high property gains tax or stamp duties.

Vietnam: International companies, particularly professional and technical services firms, will expand their subsidiaries within the country, boosting demand for Grade A office space.

What’s next?

The TPP still has to be ratified by member countries’ legislative bodies, meaning that implementation still has some way to go. However, manufacturing investment, trade flows, and professional services growth will adjust sooner in order to capture the benefits of increased market access and lower tariffs of the TPP.


v1Matthew Yeoh is a partner of Yeoh Mazlina & Partners, a member of ASEAN Legal Alliance, a group of legal firms across ASEAN
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