City&Country: Cover Story-- Selling real estate abroad

South Koreans are the low-hanging fruit. They are very comfortable with Malaysia because [of the existing populace] of Koreans here,” Kumar Tharmalingam tells City & Country.

The CEO of Malaysia Property Inc (MPI) was sharing the insights gleaned from the one-day Real Estate Committee (REC) Institutional Investments 2010 conference in South Korea on Nov 30. MPI was formed in 2008 to promote Malaysian properties  overseas, has now expanded its focus to bringing foreign direct investment into all sectors of real estate in Malaysia. It went to South Korea to raise awareness of Malaysia as a real estate investment destination.

Each session featured four speakers who shared their real estate investment experiences, both in and outside South Korea, with a moderator.

“It’s a learning curve, we’re listening to what [people] want when they invest overseas,” says Kumar.

Fund managers representing over 300 international institutions and members of South Korea’s major construction and banking entities attended the conference.

The general impression gained from the conference was that many South Koreans are looking at buying real estate overseas for their parents to retire to and to provide a place for their children to learn English affordably, a necessary skill to climb up the corporate ladder. Malaysia seems to fit the bill on both counts, says Kumar.

“One of the Korean investors said, ‘If I had a block for sale in Korea, I’d have 10,000 people qeueing up. If it is in Malaysia, I’d have 200 people because only South Koreans who want to invest overseas would consider it’,” he says, adding that this is because South Koreans prefer to buy residences in their own country first.

“However, ‘if I package it with education opportunities, it draws them in. If I had an education exhibition with property at the sidelines, I’d get 10,000 people.’ This is the kind of feedback we got from our visitors,” says Kumar.

“... the guy was basically saying, you take my children, you take my parents ...  leave me alone! It completely turns our business model around.” He notes that there are an estimated 13,000 South Koreans in Malaysia currently, about 1,000 of  whom are students. Unofficial figures may be higher, however.

Armed with this and other insights, MPI is seeking to tap into South Korean pension funds seeking investments abroad, many for the first time.

A senior portfolio manager of the US$270-billion National Pension Service (NPS) of Korea was quoted by a news agency on Dec 2 as saying that it plans fresh commitments of US$1.2 billion in private equity real estate funds in a bid to issue capital with higher risk.

Playing matchmaker?
MPI is targeting to attract RM20 billion in foreign investments to Malaysia within the next five years. This is half its original mandate of 10 years. It went to South Korea with several Malaysian property developers in tow — Iskandar Investment Bhd, Malaysian Resources Corp Bhd (MRCB), S P Setia Bhd, Malaysia Pacific Corp Bhd (MPCB), Amanahraya Bhd and Country Heights Holdings Bhd.

1Malaysia Development Bhd’s (1MDB) developments in Kuala Lumpur were also featured.
Kumar says MPI was the only participant of the conference that presented on real estate.

Featured projects were 1MDB’s 75-acre Kuala Lumpur Financial District (KLFD) and 500-acre Bandar Malaysia developments at Sungai Buloh, with a gross development value (GDV) of US$32 billion; Iskandar Investments’ 2,230-acre mixed development Medini Iskandar Malaysia in Johor (GDV: US$20 billion); MPCB and Amanahraya Bhd’s Asia Pacific Trade and Expo City (Aptec), a 60-acre smart green city within LakeHill Resort in Johor’s Iskandar Malaysia (GDV: US$1.6 billion); S P Setia’s 24.4-acre KL Eco City mixed development (GDV: US$2 billion) and the 59-acre Aeropod @ Tanjung Aru mixed development in Kota Kinabalu, Sabah (GDV: US$217.8 million); MRCB’s Grade-A Q Sentral offices (GDV: US$387 million) and Sentral Residences (US$387 million), both within its flagship KL Sentral development; and finally Country Heights Holdings’ 4.09-acre Mines Wellness City integrated resort (GDV: US$493 million) in Kuala Lumpur.

“We saw it as a great opportunity to brand Malaysia, not just to South Korean pension and equity funds, but also the regional funds at the conference,” Kumar says, adding that this was in tandem with the strengthening of bilateral ties between both countries evidenced by visits between the two premiers scheduled for this month and next year.

A 20-minute pre-lunch presentation on Malaysia as an investment destination by Datuk Michael Yam, president of the Real Estate and Housing Developers’ Association (Rehda) of Malaysia, was a strategic move in terms of timing and its tailored presentation, he says.

Prior to the conference, MPI had set up private meetings between the developers and South Korean conglomerates such as the Ssangyong Group and the Hyundai Group. Malaysian companies had 45 minutes to an hour to explain what they had to offer.

According to Kumar, the response was “immediate”, with requests for follow-up information.
“Our message to the Korean corporations was that they cannot come to Malaysia primarily as contractors. They have to come here as an investor and put some equity into a greenfield project, then the construction can be considered on a turnkey basis.

“They were quite happy with that. So long as they could negotiate a fair price, they were willing to put in equity of up to 30% of the project value,” he says.

He notes that the firms would exercise more caution and invest more wisely if they had to take risks with the developers, an arrangement they are pleased with as it is an alternative to the expensive public tendering process that may result in failure, causing them to “lose face”.

Kumar observes that the South Koreans prefer to work with government-linked companies as they are still unfamiliar with Malaysia, which is not a visible investment market. Equity funds, for instance, are interested in investing but prefer to do it via a Malaysian fund initially, given the ease of entry and exit, an idea that MPI will convey to the Economic Planning Unit, Kumar says.

“If a project is successful, they will come in independently,” he adds.

Kumar says these funds are keen to either invest in property developments or purchase big-ticket greenfield commercial buildings en bloc, citing Hana Bank’s properties in KL Sentral as an example of its investment platforms.

The bank, via its property investment arm Hana Daol Fund Management, has acquired two office towers, one 34 storeys and the other 45, with a total gross area of 846,000 sq ft.

Putting Malaysia on investors’ radar screen
“The current sentiment [in South Korea] is that there isn’t enough information on Malaysia. They know us as a tourist destination,” says Kumar.

Malaysia continues to be closely associated with manufacturing, thanks largely to the Malaysian Investment Development Authority’s (Mida) hard work.

“Now we want to take that relationship up a few notches,” he says.

South Koreans are also unaware of the nation’s infrastructure — “uninterrupted power supply, broadband, good highways and good medical facilities”, he adds.

Kumar shares his experience with a fund manager from La Salle Investment Bank in Hong Kong earlier this year, who mentioned that his office had no coverage or even a profile of Malaysia despite their relatively close proximity, a fact that bothers Kumar.

Even government agencies such as the Malaysian External Trade Development Corporation (Matrade) and Mida are unable to promote local real estate effectively given the absence of crucial information, he says.

Going forward
To further promote Malaysian real estate among South Korean investors, MPI has enlisted the help of Woori Bank and Hana Bank, South Korea’s largest banks. The banks have teams focusing on offshore properties, staffed by people experienced in offshore property transactions with exposure to Southeast Asia.

“We brought them here in October and set up meetings with developers for site visits, showing them projects from high-rise city condominiums to golf resorts, a whole range, opening their eyes. We’ve also followed up with a meeting with them recently. They will now recommend these investments to their database [of clients],” says Carrie Fong, MPI head of marketing and branding.
“They have to see for themselves, so they are relationship managers. This is a passive way, without us spending so much money. “Of course, we want to do it on a larger scale, hence the format still has a bit of end-user target with the database from these banks coupled with business-to-business meetings with construction and investment firms,” she says.

During the recent visit in Seoul, MPI also met up with senior officials of both banks.

MPI plans to hold an exhibition in South Korea next March and will continue to set up private meetings between Malaysian developers and Hana Bank and Woori Bank. The banks have requested a list of suitable property developers for their clients seeking high-value investments. The banks are looking at investments of up to US$100 million, Kumar says.

The agency also plans to take part in a private equity real estate investment conference in Hong Kong in February. “We will speak on Malaysia in four separate breakout sessions, each with a different target investment,” Kumar says. One of the sessions will compare Malaysia with Vietnam and Thailand, while another session will paint Malaysia as a retirement destination and one for second-home ownership.

MPI also plans to extend its business-to-business meetings to India, which is flush with private equity wealth, he says.

“They don’t mind punting on a development project in Malaysia, so long as there’s an exit plan at the end of six years,” Kumar explains. He says these initial investments will also have to happen through “brand-name” funds first, but notes that “fortunately” Malaysian talents are heading these funds.

Feedback
Rehda president Yam says the circumstances surrounding their visit to South Korea were “timely”.
The missile attacks by North Korea, coupled with MPI’s strategic decision to host luncheon in return for its 20-minute session, helped train the attention of the fund managers on Malaysia’s real estate market, he tells City & Country.

Yam, a member of MPI’s board, adds that the slew of developments in prime areas should be underpinned by the Government Transformation Programme (GTP) and Economic
Transformation Programme (ETP) to boost investor take-up of these properties as organic growth from demand alone is insufficient.

Developers should also focus on creating products of higher quality with green features, he adds.
“Korean investors are keen to explore smart and strategic investments and the time is ripe for them to seek opportunities beyond North Asia in Southeast Asia, particularly Malaysia,” says Datuk Syed Mohamed Syed Ibrahim, president/CEO designate of Iskandar Investment.

“Leading Malaysian companies can and should work in close collaboration to provide greater insight into investment opportunities here. This includes putting in place a strategic communications and marketing plan that engages directly with potential investors and relvant business organisations over a sustained period.

“Iskandar Investment,  spearheading the development of a connected liveable community in Iskandar Malaysia, has attracted the interest of potential investors in property development and real estate. The first phase of development will be completed in 2012 and investors understand the urgency to be part of the action now,” Syed Mohamed tells City & Country.

MRCB senior vice-president and head of property Wong Dor Loke and S P Setia KL Eco City’s Alan Koh are satisfied with the outcome of the trip as they say it helped them raise awareness of their projects.

“… I think MPI understands the private developers’ needs and aspirations and is able to facilitate the outreach to international investors in a cost and time-efficient manner,” says Wong.

On what could be done better, he suggests: “Perhaps with time a database could be set up and participants can select and reach out to a broader clientele.”

Koh views the conference as a major platform for property developers who aim to bridge the gap by offering investment opportunities.

“MPI should also continue to look at other markets, such as China and Southeast Asia, to generate more awareness in order to attract foreign investment. The government could also act as a catalyst to put Malaysian property developers on the radar,” he adds.

However, Country Heights group managing director Mark Rozario feels more could be done to attract more interest in [Malaysian] projects.

“From the talks given by various speakers, it was evident that Malaysia generally ranked rather low down their priority list of overseas investment destinations for real estate,” he tells City & Country.
While praising the trip as a “commendable” effort by MPI, Rozario says “significant impact can only be achieved with the concerted efforts of all interested parties, that is the various government agencies and major developers”.

“Advance planning to communicate with attendees and meeting participants beforehand could have helped to attract more interest than was garnered during the one-day event,” he notes.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 836, Dec 13-19, 2010