Saturday September 4, 2010www.thestar.com.my By ANGIE NG PETALING JAYA
The ringgit’s strength and generally lower property valuations in the UK are drawing more Malaysian investors, both retail and institutional, to London and the latest to make the move is the Employees Provident Fund (EPF).
The pension fund has allocated a war chest of £1bil (RM4.88bil) to invest in properties in the UK and has appointed ING Real Estate Investment and Deutsche Bank’s property investment arm RREEF to manage the investment. They will each invest £500mil in European property markets, focusing on the UK. In a statement on Monday, the EPF said the investments would be for long term with expected annual yields of 6% to 7%.
Property consultants lauded the fund’s move as being prudent and far-sighted as the diversification of its property investment portfolio would ensure a more balanced portfolio and spread the risks to more developed markets outside Malaysia.
Henry Butcher Malaysia president Lim Eng Chong said London was a very active international real estate market where income asset class was a major sector of the financial market. “Since last year, there has been an influx of foreign funds from Russia, the Middle East and the Far East, including China, into London to take advantage of the positive environment,” Lim told StarBizWeek. “There’s much more depth and breadth in the UK market. Very often, its economy moves in different direction from Malaysia’s, thus affording a more balanced and resilient portfolio. Presently, the UK is only (barely) coming out of a recession and, although the market has started to move, there is still some way to go.”
London is also the financial capital of Europe and it is the de-facto choice capital in the EU for foreign companies. “It is a very opportune time to invest in the UK property market now. The ringgit is at record high against the pound sterling while the historic low interest rates in the UK (interbank rate is only 0.5%) make yields attractive,” Lim pointed out.
He said commercial properties with strong convenants for at least seven years offered potential for upsides upon market recovery and there were deals which were bankable to capitalise on the low interest rates now.
Malaysia Property Inc chief executive officer Kumar Tharmalingam, who was in London when contacted, said the EPF was a well-regarded pension fund internationally with a reputation for prudent investments. “London is no more a rock-bottom country but you have to have a permanent presence here to take advantage of investment opportunities. Using the old-boy network in the city of London that the EPF is doing is the right strategy. It has appointed probably the best property advisers and managers in Europe and I believe they will guide the fund to the right quality investments,” he said in an e-mail response.
Kumar said as the EPF had to guarantee a dividend on all contributions, “it will be looking to buy completed assets which have been tenanted and have a structured and forecast return that is tangible.” He said at the height of the downturn in early 2009, yields of London assets went up as high as 8% but they had since gone back to their normal base of 5%. “But with the pound sterling and the euro at historical lows since the mid-90s, this may be a good time to buy well-positioned assets where there is an opportunity for rent values and currency appreciation in the medium term,” Kumar said.
It has attracted many institutional funds, including South Korea’s National Pension Fund which purchased a building in Canary Wharf and also took a stake in Gatwick Airport in February.
Kumar, who made a quick check with some of the major property agents in London, said he was told an Asian sovereign fund had made bids for a business park near Heathrow Airport.
Ireka Development Management Sdn Bhd chief executive officer Lai Voon Hon, who was also responding from London, said with Europe heading towards a double-dip recession, a number of prime commercial properties with blue-chip tenants in the UK would be available to investors at very attractive yields. “The advantage of UK commercial properties is that the lease is normally very long term so the income is fairly stable. As such, commercial properties with blue-chip tenants at high rental yields will be ideal for the EPF. The strong ringgit vis-a-vis the pound sterling is certainly to the EPF’s advantage,” he added.
According to CB Richard Ellis executive director Paul Khong, with the strengthening of the ringgit, investors are now able to buy more with the same ringgit compared with a year ago. “The top favourite destinations for both institutional and individual investors are still the UK, Australia and Singapore markets,” he said.