The derelict Battersea Power Station was snapped up by a Malaysian team for £400 million in July. — Reuters pic
KUALA LUMPUR, Oct 18 ― Malaysian interests will account for up to one in 10 property purchases in London this year, leading the wave of global investments that have already seen almost £30 billion (RM150 billion) spent on offices, warehouses and shopping centres in the United Kingdom.
The Financial Times reported that traditional investors from continental Europe, the United States and the Middle East are being pushed hard by a deal-hungry new entrant: Malaysia.
Jones Lang LaSalle estimates that Malaysia accounts for more than 10 per cent of the commercial property in London this year.
“Investors are searching for an alternative to the traditional bond market and London real estate is an attractive and viable proposition,” Matthew Richards, director of international capital at Jones Lang LaSalle, the property services group, told FT.
He said that investment yields of about 5 per cent, and London’s relatively high levels of liquidity, made the capital “a magnet for international investors”.
The type of deals being done by global buyers seeking a secure, long-term investment, are typically large office buildings with long leases, and have reflected this appetite for stable returns rather than capital appreciation, the FT reported.
Jonathan Hull, head of European capital markets at CBRE, told the newspaper: “International buyers have been dominant over the last 12 months and it is fair to say that they are making the market for major central London offices. What clearly shows through is the focus of investors on prime property and risk avoidance”.
The newspaper pointed out that the real power driving Malaysian investors towards London property are its domestic pension funds, which are awash with cash.
The country’s stock and bond markets are too small to absorb this, so the funds are hunting abroad for returns, the FT reported.
The Employees Provident Fund (EPF) is one of three investors in the Malaysian consortium planning the £8 billion redevelopment of Battersea Power Station.
Malaysian investors were well on their way to being the leading buyers of London offices for the first time in 2012 in July, helped by a deal to buy London’s landmark Battersea Power Station.
Malaysians bought £1.3 billion of London property in the seven months to July 24, more than British buyers and beating the US into second place among overseas investors with £793 million, research by property consultant CBRE Group showed, according to a Reuters report.
“Given what we know about how active the Malaysians are in the market, it looks like they will outspend North American investors this year,” CBRE’s head of central London research, Kevin McCauley, told Reuters in July.
The figures include the derelict Battersea site, which was bought by a team with Malaysian developers SP Setia and Sime Darby for £400 million in July.
It will be the first time Malaysian buyers have outspent any other nation since CBRE started keeping records in 1984, a ranking dominated in recent years by US buyers.
Far East buyers 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, Reuters reported in July.
Overseas buyers have invested £26.2 billion in London offices since 2010, CBRE said, and foreign ownership of real estate in London’s City financial district stands at 52 per cent, according to Development Securities.
British investors, who were the biggest buyers 20 years ago, have spent £1 billion mainly on smaller, lower quality properties so far this year, CBRE said.
Other Malaysian deals include investment fund Permodalan Nasional Berhad’s acquisition of two office buildings for about £570 million that house the European Bank for Reconstruction and Development and law firm Olswang.
“This is no flash in the pan,” Simon Barrowcliff, CBRE’s executive director of central London capital markets had told Reuters. “I think the Asians will be at the forefront for the next three to five years.”