My Space: Strong return of regional real estate funds

Regional real estate funds have been very quiet in Asia since mid-2008 — cautious about the impact of the US’ economic woes, besides the slowdown in the Singapore and Hong Kong markets then.

However, the middle of last year saw the mood change. Funds started buying into strategic real estate investments in Singapore, Hong Kong, Japan and China.

These funds, similar to unit trusts or mutual funds designed to maximise profits for investors, are usually founded by a group of real estate professionals who go on to manage the property/real estate for the investors. And the number of such funds being set up to invest in Asia is increasing steadily.

In early April, Perennial Real Estate, a firm set up by the former head of CapitaLand’s shopping mall business, unveiled plans to launch property funds that will acquire malls in China and Singapore to tap into the region’s growing consumer demand.

Pua Seck Guan, who left CapitaLand in 2008, is making a comeback to the property fund management scene, drawing on his experience in helping to build the Singapore developer’s regional shopping mall business and the floating of assets via real estate investment trusts (REITs).

Perennial closed a 1.2 billion yuan (100 yuan = RM47.35) Chinese Shopping Mall Fund targeted at Chinese investors and it has started pre-marketing a similar fund aimed at international investors.

Prior to the end of 2008, there were many foreign funds active in Malaysian real estate, such as ING Real Estate Fund (cornerstone investor in Suria Stonor in Kuala Lumpur City Centre), Macquarie Global Property Advisors (MGPA) (which invested in  Intermark on Jalan Tun Razak), various Kuwait Finance House funds (The Pearl on Jalan Stonor, The Pavilion in Bukit Bintang), Pacific Star (The Pavilion Residences in Bukit Bintang and Panorama  off Jalan Ampang),  IMMOPortfolio Target Return Fund managed by SEB Asset Management (The Pavilion Residences in Bukit Bintang), Union Investment Real Estate (Capital Square), Capjtal Land (One Mont’ Kiara, Mines, two malls in Penang), Asian Equity Partners (Kenanga International on Jalan Sultan Ismail) and Qatar Investment Agency (The Pavilion Mall) to name the more prominent ones.

But from the end of 2008, the foreign funds in Malaysia were pretty quiet. Sentiments changed earlier this year and we at Zerin Properties saw the return of regional funds with lots of dry powder, wanting to make Malaysia a part of their investment universe.

These comprise the opportunistic funds, development funds and investment funds, and managers say they favour Malaysian real estate because:

- Malaysian markets are very stable — there was no crash in 2008. The domestic demand is strong;
- Prices are still relatively low, allowing for higher return on investment;
- Strong upside potential;
- Singapore and Hong Kong are not offering enough upsides for the funds as prices are very “hot”;
- Malaysia’s rules and regulations are transparent and similar to Singapore’s;
- Thailand is currently not a safe investment;
- Indonesia is still not ready; and
- Malaysia has relatively low interest rates and high liquidity in the market.

So the funds are back and our markets are stable with strong take-up. But, what do these funds look for in Malaysia?

Depending on the nature of the fund — type of investment and its time line — most funds are eyeing the following types of investments to complement the present assets they manage:

- Retail properties in key cities in Malaysia (to invest in and add value via retail management     expertise);
- High-end residential projects in Penang and Kuala Lumpur (to joint venture with developers to co-develop and add value in terms of the product, co-branding and marketing channels); and
- Grade A office buildings or office buildings that can be converted to Grade A type in the Klang Valley

These funds have access to capital in the region. And Malaysia, with its plans under the New Economic Model (NEM) to launch various real estate-based projects and products, is now well positioned to tap into this capital.

With proper marketing and documentation, transparent approval and planning processes as well as effective implementation of the liberalisation of financial and services markets, I, along with the regional real estate funds, believe that it is the right time to invest in Malaysian real estate.

Previndran Singhe is CEO of Zerin Properties. He is highly passionate about corporate real estate and making Malaysia an international real estate destination.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 802, April 19-25, 2010


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