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Thursday, September 23, 2010

More funds invest in offshore properties

PETALING JAYA: More Malaysian institutional funds, including Permodalan Nasional Bhd (PNB) and the Employees Provident Fund (EPF), are looking to raise their exposure in offshore property investments such as in Australia and the UK.

Last month PNB acquired its first property in Australia with the purchase of Santos Place in Brisbane for A$287mil (RM838.19mil). The 36-storey Premium A grade office tower with 34,338 sq m is said to be the largest six-star environmentally rated building in Australia.

Christopher Boyd ... ‘They are entering markets that offer higher income assets.’

Following on the heels of PNB’s foreign venture, the EPF had at the end of August announced that it would be investing £1bil (RM4.88bil) in European property markets, focusing on the UK.

The fund had said that the investments would be for the long term with expected annual yields of 6% to 7%.

Industry observers said another potential candidate for offshore property investment was Kumpulan Wang Persaraan (KWAP).

According to the fund in its recently upgraded portal, the objective of its property investment initiatives is to invest in strategic properties for steady income with growth potential on rents and capital values in order to achieve commendable returns that contribute well to KWAP’s overall goals.

“Prospective investments in property can be domestic or foreign based with a preference for locations in central business district and urban areas. Acquisition of the strategic assets can be via direct acquisition or partnership.

“The risk exposure of property investments should not exceed 30% of KWAP’s Strategic Asset Allocation. Moreover, the property portfolio itself shall be well diversified based on locations, types, sectors and sizes,” KWAP said in the website.

PNB’s acquisition of Santos Place is said to be the largest commercial property transaction in Queensland since the global financial crisis. It was brokered by CB Richard Ellis and Jones Lang La Salle.

According to CB Richard Ellis Malaysia executive chairman Christopher Boyd, who was one of the agents for the PNB deal, Malaysian funds are venturing offshore to diversify their risks and to go to markets where returns and capital values are higher.

“They are entering markets that offer higher income assets as they have a commitment to pay out dividend yields of 5% to 7% per annum,” he told StarBiz.

Santos Place is fully tenanted and more than 40% of the office space is leased to Australian oil and gas exploration and production group, Santos Ltd. Petronas is also one of the tenants.

“The vendor, Nielson Properties, has given a guarantee of an annual yield of just under 8% for the building. The yield is quite attractive considering that Malaysian properties are offering yields of only 6% to 6.5% a year,” Boyd said.

He added that the performance of office buildings in general “is a proxy for the country’s economy and how it fares is as good as the tenants that occupy them.”

“This is a good time for the funds to snap up good quality property for long-term investment. Investing in offshore property market is a cyclical play and it is important to get the timing right when the market is on the verge of an upturn,” Boyd added.

Most of the traditional buyers of investment property in Australia are institutional funds such as mutual and pension funds and REITs, but they are quite cash strapped now and are not active in the market.

He said the domestic buyers were expected to only start getting back to the market within the next 12 months and the valuation of the property assets was still quite attractive.

“Given that there is still room for capital appreciation for good quality investment property Down Under, it is a good time to leverage on the market. The quality of the tenants there is also highly rated and they usually sign up for long-term tenures of 10 to 15 years. The rental rates will be reviewed every three to five years,” he added.

Besides office buildings, investors Down Under are also keen on good retail centres as well as industrial and logistics buildings.

CB Richard Ellis executive director Paul Khong said there were also strong interests from Malaysian developers in Australian development projects especially in Sydney and Melbourne.

“They are looking at redevelopment of commercial and residential sites and also joint venture opportunities. Some have already set up shop there.”

Khong said Malaysians generally ranked very high on the investment list for Australia and UK properties as a majority of individual investors would have one of their children studying there or would be going abroad to pursue their studies soon.

“This is a natural push for our local investments to head this way. The investors will be looking at yields of 6% to 8.5% (initial yield) depending on property type, size of investment, location and country. Many projects have seen good or even double-digit capital appreciation over the last five years,” Khong added.

By The Star

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