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Tuesday, September 18, 2012

Malaysia stamps mark in London

BRITISH ALLURE: Malaysians have found Britain, especially London, extremely attractive as an investment (and playground) location. Zuraimi Abdullah was in the city recently and came back with some ideas as to why Malaysia is well on its way to become the world’s top buyer of London properties this year.

"MALAYSIA has come to London", to borrow a quote from Datuk Seri Idris Jala, one of our brightest and "fun to hear him talk" ministers.

The arrival alluded by Idris Jala is not that typical one made by Malaysians en route to Bicester Village (about an hour's drive from London) to buy designer brands at half the prices than that in Kuala Lumpur. Neither was it by those who are there to spend Hari Raya or Christmas with their sons and daughters working or studying in the British capital.

It is also not a leisure trip by hardcore football fans to watch Arsenal, Chelsea or Tottenham slugging it out to be London's top Premier League club.

The arrival in question is by Malaysian investors who have made London a safe haven for their burgeoning cash pile.

The list of Malaysian investors in the city is extensive, from the Employees Provident Fund (EPF) and Permodalan Nasional Bhd (PNB) to IJM Land Bhd, Oriental Holdings Bhd and Eastern & Oriental Bhd.

PNB already has three properties in London in One Exchange Square, 90 High Holborn and Milton and Shire House.

In early August, Amcorp Properties Bhd said it was forming a joint venture to buy a freehold office building in London's trendy Mayfair district. This was followed by IJM Land Bhd's disclosure of a mixed development on Royal Mint Street.

Genting Malaysia Bhd, meanwhile, is investing STG120 million (RM592 million) to develop a leisure and entertainment complex in Birmingham.

Non-property wise, Berjaya Group founder Tan Sri Vincent Tan has already bought Welsh football club Cardiff City.

So has AirAsia's Tan Sri Tony Fernandes with his London-based Queens Park Rangers.

Malaysia was ranked second only to the United States in a list of the top five property investors in London by total investment volume between 2010 and the second quarter this year, with STG2.35 billion and STG3.53 billion ploughed in by both countries, respectively.

Rounding off the list were Germany with STG1.29 billion, Saudi Arabia with STG969 million and Qatar at STG750 million, according to an independent report.

But in the first seven months of the year, Malaysians bought STG1.3 billion worth of London properties, more than British buyers and beating the US (STG793 million) into second place among overseas investors, research by property consultant CBRE Group showed.

Analysts said the favourable exchange rates the European financial crash had created is a big draw for investors. The British pound's exchange rate has remained below or around the RM5 mark since last year.

A STG400 million deal concluded by Sime Darby Bhd, SP Setia Bhd and the EPF to buy the iconic Battersea Power Station in London earlier this month could have pushed Malaysia further from the US as London's top investor year to date.

Malaysia's growing appetite will be boosted by several potential deals by year-end.

Tabung Haji is currently finalising its first commercial property acquisition in London, estimated to be worth STG165 million.

The proposed acquisition, part of the pilgrimage fund's plans to splash some RM1 billion on overseas investments, is expected to be sealed this month.

Syarikat Takaful Malaysia is scouting for commercial buildings or offices in London, too.

Kumpuan Wang Amanah Pencen (KWAP) is rumoured to have just made its first foray there, with the acquisitions of three properties.

The pension fund reportedly plans to spend up to RM1 billion on London assets.

Analysts said central London has been the focus of Malaysian and other Far Eastern investors in recent years. They were looking to benefit from the city's perceived safe haven appeal and the iconic nature of some of its real estate.

A weak British pound, coupled with low interest rates, make London a compelling location, they added.

"Despite the current economic contraction, UK properties remain favourable, given the ultra-low interest rate environment, ongoing geo-economic uncertainties and relatively weak British pound," a local analyst said.

"Malaysians are attracted to London's property market by the weakness of sterling and the fact it is a liquid and transparent investment in a relatively stable political environment, often providing better returns than Asia's more volatile and smaller markets," he added.


Malaysia's appetite in property investment in London increased dramatically when the Sime Darby-SP Setia-EPF consortium won the bid to redevelop the iconic Battersea Power Station.

Apart from the STG400 million paid for the site, the consortium will contribute another STG200 million towards building an extension of the Northern Line of the London underground railway system, making the total effective cost some STG600 million.

It is a major coup for Malaysia as various development plans for the site, which once graced the cover of British rock group Pink Floyd's "Animals" album in 1977, had been shelved over the years due to financial issues.

The Malaysian consortium will create a new town centre with retail, commercial and residential components totalling eight million sq ft. The redevelopment will churn out an estimated gross development value (GDV) of STG8 billion over 15 years.

A recent visit to the Battersea site made it very clear why this piece of real estate was coveted by so many: its strategic location, size and value.

At 15.8ha, including 6ha for the old powerplant with prime riverfront access, the site is perhaps the largest piece of land left for redevelopment in central London.

The site is located south of the River Thames, and just east of Chelsea Bridge, which links it to the upmarket neighbourhoods of Chelsea, Kensington, Knightsbridge and Belgravia.

The world-famous Harrods, Harvey Nichols and the high-end shops of Sloane Street are all located in less than a 20-minute walk.


EPF chief executive officer Tan Sri Azlan Zainol said it would not have got involved in the project if it were not convinced with its prospects and the partners behind it.

Azlan said the combined financial strength and experience of SP Setia and Sime Darby, both of which are backed by cash-rich PNB, are key factors.

The EPF itself is not a poor organisation.

According to a Towers Watson report, the EPF was the world's ninth biggest retirement fund in 2010 with investment assets of RM489 billion as at March 31, 2012.

CIMB Research estimates that the Battersea project can fetch a 25 per cent profit margin, but said earnings contributions will not trickle in until three years later, in 2016.

The total net internal area of the project is about 6.3 million sq ft, of which close to 60 per cent is residential.

The launch of the development's first phase is set for the second quarter of next year.

Phase One will be a self-contained development made up of multiple residential buildings with a total of 800 apartments, standing above a commercial podium with a GDV of STG1 billion.

The project development cost for the first two years is estimated at STG200 million, CIMB Research noted.

"Overall, we remain optimistic of the project's prospects. We like the location and (the project's) low land costs compared to its peers.

"We gather that the average selling price for residential properties will be about STG1,100 psf, broadly in line with other launches in the vicinity," the firm said.

By Business Times

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