In London property, Malaysia a leader of the Asian invasion

(The Malay Mail) –  The government-backed funds of Malaysia, Singapore and Korea are at the forefront of a new wave of investment in London’s booming property market, the Financial Times reported today.

Asian and Middle Eastern money accounted for more than eight out of 10, or 82 per cent of commercial transactions in London in the first half of the year.

The FT reported that “overseas investors were behind a record 82 per cent of property transactions in the City of London during the six months, to the value of £4.15 billion (RM20 billion).”

This underscored the demand for high value property at a time of low interest rates and weak sterling.

According to the newspaper, the year has been punctuated by a series of high-profile, high value deals in central London – the latest being the £260m purchase last week of the Lord Rogers-designed Lloyd’s building by Ping An, the Chinese life assurer.

Other notable transactions include the Malaysian pension fund Kumpulan Wang Persaraan’s (KWAP) purchase of a City office block for £215 million.

KWAP is a government fund used to finance pensions paid out to civil servants.

Last month the same newspaper also reported that Malaysians are among the top 10 biggest foreign buyers of US commercial property, joining the flow of investors from emerging markets looking to park their cash in a stable environment with higher yields.

Citing data from global real estate research and consulting firm Real Capital Analytics (RCA), the widely-read business and current affairs paper reported Malaysia to have entered the same league as Canada, Singapore, China, South Korea, Australia, Israel and Kuwait in buying up chunks of prime office space in New York as well as in gateway cities across the US valued at US$27.2 billion (RM84.3 billion) last year.

Earlier this month Prime Minister Datuk Seri Najib Razak told FT that Malaysia would continue to gobble up London property as cash-rich funds such as Employees Provident Fund (EPF) “need to take some of that surplus abroad”.

The prime minister was in London to launch the Battersea project — owned by the Malaysian consortium of Sime Darby, SP Setia and the EPF — in the British capital.

The redevelopment of the iconic power station has also come to symbolise Malaysia’s appetite within the sector.

Already, the EPF and government-linked corporations such as Sime Darby have shot Malaysia to second place in London’s lucrative property sector.

According to the Financial Times, an EPF spokesman said the fund aimed to have 23 per cent of its portfolio invested overseas by 2014/15, up from 18 per cent now.

The EPF and its public sector equivalent, Kumpulan Wang Persaraan, began venturing into UK property in 2010, acquiring an office building as part of plans to invest up to £1 billion  in the British property market, according to the Reuters news agency.

A year later, the EPF expanded its foray by taking out a five-year £300 million loan ― its first offshore loan ― to fund the acquisition of three London-based properties.

It holds 20 per cent of the Battersea project, with Sime Darby and SP Setia owning the remainder.

The EPF handles around RM176 billion generated from the mandatory retirement savings of Malaysian private workers.

Najib also told the British newspaper that Malaysia aimed to be a “major player” in the London property market.

FT reported that spending by Asian investors accelerated rapidly during the three months to the end of June, with the region responsible for £1.04 billion during the first quarter, up 166 per cent on the previous three months.

London, cornered more international property investment last year than any European country.

This reflects the growing pressure on large, cash rich investors to diversify away from the bond markets amid a period characterised by low interest rates and volatile equity markets, according to FT.

The newspaper added that the central London office market has been highlighted by investors for offering a government bond-like risk profile but significantly better yields, typically between four per cent and six per cent.