FACILITAT ING & PROMO T I N G I N VE ST M E N T F O R M A L AY S I A N R E A L E S TAT E | www.malaysiapropertyinc.comApril 2011 issue 11 INVESTOR PREFERENCES Capitalising On Asia PacificCOVER STORYLiquid Returns From Property CEO’S SPACE Let’s Talk About Our Real EstatePOLICYMalaysian Government Spearheads NEWS FLASHInnovation More Demands For HotelSECTOR FOCUS IN A NUTSHELLUnlocking the MRT’s Potential Stable Growth For Malaysian Real EstateLIQUID RETURNS FROM PROPERTYMalaysian REIT market enjoys stable yieldsby Afiq Syarifuddin & Hazrul IzwanThe 2007 financial crisis in the UnitedStates is still affecting the Westernand European markets this has seeninvestors around the world scramblingfor investment vehicles that cangenerate attractive returns withoutthem having to take colossal risks.One of these vehicles is the real estateinvestment trust (REIT), which isfeaturing prominently on investors’radars. As a listed vehicle managed byreal estate professionals, REITs explorea portfolio of income-generatingproperties and distribute net returns ona regular basis to provide stable yieldsfor unit holders. Kuala Lumpur Skyline(continued next page) WHAT DOES REIT MEAN? REIT is the accepted acronym for Real Estate Investment Trust. REIT companies generally invest, manage and distribute net profit through dividend payback to investors. A REIT is traded on Bursa Malaysia with the same ease of buy and sell as a normal equity. REITs don’t just rent out and manage properties in their portfolio. A high performance REIT is developed by injecting new acquisitions into the portfolio. In some countries, REITs jointly develop property projects with other entities. This will provide even higher potential returns compared with low to moderate risk investment instruments. A REIT is a good alternative asset class for those looking for dividend-yielding investments.
COVER STORY 2(from previous page) much needed liquidity to the market time the Islamic REIT guidelines were not with appraised property values of RM3.7 published yet. By virtue of convertingREITs first made an entry into Malaysia billion and RM2.1 billion respectively. into Malaysia’s largest Shariah-in the late 1980s with the advent of compliant real estate investment trust,Arab-Malaysian Property Trust. At that However, there is medium-term pressure Axis-REIT has now widened its investorpoint in time, Malaysia had established on interest rates to go up, resulting in base to include conventional as well asthe framework for real estate trust a narrower spread between risk free Shariah-based funds.funds under a set of guidelines called Government bond and REIT yields. REITsListed Property Trusts (LPTs). However, across the board are expected to be Other sector-specific Islamic M-REITsdue to the lack of tax transparency and affected, which in turn could affect REIT in the market are Al-Aqar KPJ and Al-fund liquidity, LPTs developed relatively returns on their arbitrage on borrowing. Hadharah Boustead, which focus onslowly in Malaysia and went into healthcare and plantation respectivelyrelative obscurity until the Securities Having said that, Ting mentioned that as their key portfolios.Commision revised the LPT rules as the M-REIT yield gap is still attractive,relaunched them under the newly generally producing higher returns at AxisREIT Manager Berhad’s chiefformed REIT Guidelines in 2005. 7% compared with bonds at 3%. This executive officer Stewart LaBrooy said reflects that M-REITs generally still have that Axis-REIT success in converting intoWith the new guidelines in place, the Figure 2: Asset Value in RM million as at 31 December 2010Malaysian REIT (M-REIT) market isexpanded from 1 REIT in August 2005 Sunway REIT 3,729to 13 currently and is expected to grow CMMT 2,185further over time. However, it is stillconsidered small compared with other Starhill REIT 1,619REIT markets in the region, with only 13 AmFirst REIT 1,044players a market capitalization of RM10 Al-Aqar KPJ REIT 1,011Billion. Of this, 10 are conventional, Axis REIT 908while three others are Shariah-compliant. Al-Hadharah Bousted REIT 866 Quill Capita Trust 818Associate Professor Sr. Dr. Ting Kien Hektar REIT 777Hwa, Head of Centre for Real Estate Shariah-compliant REIT AmanahRaya REIT 748Research Universiti Teknologi Mara, market share in Malaysia Tower REIT 599 19%told Property Quotient that theM-REIT market is expected to further UOA REIT 519consolidated this year. Last year, Atrium REIT 182two large capital M-REITs, namelyCapitaMalls Malaysia Trust (CMMT) (RM’m) 2,500 3,000 3,500and Sunway REIT (SunREIT), were listed 1000 1500 2000 500with a market capitalisation of nearly 0RM 5 billion and this added depth and Source: Bloomberg, MPI ResearchFigure 1: Dividend Per Unit (sen) as at room for price appreciation. Moreover, a Shariah-compliant REIT was relatively31 December 2010 M-REITs also represent variety through easy as being an Office /Industrial REIT sector-specific REIT companies and its tenants complied with the ruling REIT Dividend Per Unit diversified REIT companies. tjhat they should not indulge in no (sen) haram (illegitimate) activities. This Even though M-REIT is traded freely in would be more difficult to maintain the stock market, it behaves in such a should the portfolio contain retail and Sunway REIT 6.70 way that there is little fluctuation in its hospitality assets. CMMT 3.40 price. Only in the event of a market crash Starhill REIT 3.29 or sudden interest rise would the price A common misconception of Axis-REIT AmFirst REIT 4.81 decrease as evidenced in 2008. is that it focuses on injecting single- Al-Aqar KPJ REIT 4.43 tenant properties. The truth, however, Axis REIT 4.30 Although the bulk of M-REITs are is that single tenant assets tend to Al-Hadharah REIT 6.20 conventional in nature, some companies comprise around 50% of its assets under Quill Capita Trust 4.18 have decided to capitalise on the current management. The balances are multi- Hektar REIT 10.30 market desire for Islamic products and tenanted assets which allow a blend AmanahRaya REIT 1.67 established Shariah-compliant REITs. of organic growth coupled with long Tower REIT 5.50 leases. It portfolio strength is derived UOA REIT 2.47 The first company to convert to a from three main factors: strategic Atrium REIT 2.20 Shariah-compliant REIT was AxisREIT location, tenant profile and enhanced Source: Bursa Malaysia Managers Berhad. Axis-REIT was listed value of the buildings. in 2005 as a conventional REIT as at the (continued next page)
COVER STORY 3(from previous page) “M-REIT yield gap is still attractive asFor example, during the acquisition it generally produces a higher yield atof Nestle House (presently known as 7% compared to bonds at 3%. ThisQuattro West) in Petaling Jaya, a major reflects that M-REITs generally stillrisk identified was a short-term leaseagreement with the property’s single have space for price appreciation.”tenant. However, the six-storey buildingwith one basement car park, which Associate Professor Sr. Dr.commands a total of 104,392 sq feet, Ting Kien Hwa,is strategically located on PersiaranBarat, Petaling Jaya, adjacent to PJ Head of Centre forHilton Hotel and the busy commercial Real Estate Research (CORE),precinct of Petaling Jaya, with excellent Universiti Teknologi Mara (UiTM)connectivity to two LRT stations andmajor bus stop and close to ampleamenities within the neighbourhood. assists local pension funds’ mandate to controls over outgoings, enhancement invest in Shariah-compliant portfolios. and improvement to property value byWhen the tenant left in November way of renovation and refurbishment,2009 the Manager decided to realise Asked if Axis-REIT plans to expand which will increase earnings per sharethis potential and embarked on a its portfolio in other jurisdictations, (EPS) and be translated to higher capitalmajor refurbishment exercise aimed at LaBrooy reiterated that Axis-REIT will value (CV).enhancing value and improving building remain a Malaysia-centric REIT, withefficiency by incorporating green no plans to venture for assets outside Meanwhile, external growth can bebuilding technologies, upgrading the the country. However, he concurs achieved through acquisition of moreM&E facilities and giving the building that the Shariah-compliant model is yield-accretive properties essentiallya modern facelift. Within three months not restricted to single country asset aimed at improving the propertyof reopening, the occupancy of the models. portfolio through diversificationbuilding was 80% and rents were 25% advantage and growth in the funds fromhigher. Ting said interest in M-REITs could be operation (FFO). spurred further through active propertySimilar to conventional REITs, Shariah- acquisitions by the REIT Management Adenan Md Yusof, chief operatingcompliant REITs are given tax incentives companies, thus increasing their officer of AmanahRaya REIT (ARREIT)and trade fairly in the marketplace. liquidity and visibility thereby pointed out his concern that MalaysiaInterestingly, the appeal lies in thier attracting foreign investors. He added must further decrease its tax ratesShariah compliant nature, which clearly that opportunities arising from mergers on REIT incomes to bring them in line and acquisitions between REITs could with charges imposed by its neighbor, also be an exciting development to Singapore. In addition, fine-tuning the incite investor appetite. tax regime for foreign institutional investors can make M-REIT more Ting also mentioned that in the US, even attractive compared to similarly-taxed jails are listed in the REIT market through REIT markets such as Japan, Thailand Private Finance Initiatives (PFI). Thus, and South Korea. an introduction of infrastructure- REITs could allow highways, airports, Nonetheless, investing in M-REIT is railways and other income-generating reasonably profitable as the market infrastructure to be listed. capitalisation is still small compared with other more mature markets, There is also some talk of foreign allowing more room for development. Islamic REIT listings coming in from This also ensures that returns generated the Middle East, which could positively are comensurate with the risks involved. benefit M-REIT through international property exposure. Being a country that Ting observed that the current trend has established a Shariah-compliant in the market as reflected in share framework, Malaysia definitely has movements is that investors prefer “Shariah-compliant model can a better platform compared with its sector-specific REITs compared with be extrapolated to other cities.” neighbours. diversified REITs. This is because the former perform better, as they provide REIT returns can also be improved better exposure due to being sector- Stewart LaBrooy, through internal growth and external focused. Chief Executive Officer growth efforts undertaken by REIT AxisREIT Manager managers. Internal growth can be achived through rental income growth, (continued next page)
COVER STORY 4(from previous page) M-REIT can also benefit Figure 3: Market Capitalisation of Individual REIT markets in Asia Pacific as at 31 Dec 2010 institutional investors through the transfer of US$’billion responsibilities such as US$’billion conducting title searches and 72.0 8 property due-diligences to the 7 6H i s t o r i c a l l y, a c r o s s t h e b o a r d 80diversification, while reducing risk 43.4 5 70exposure, also generates smaller returns 4 60 28.9 3.4compared with sector-specific REITs. 2.6 3 50 2.1 12.4 2As mentioned earlier, M-REIT is bundled 40with tax incentives to help spur the 0.3 1 30market. M-REIT will not be taxed should 0 20 Hong Kongthe distributed income be more than Singapore Australia Malaysia Thailand Taiwan90% of net income. Moreover, the unit 10 Korea Japanholders are only imposed a one time 010% withholding tax on dividends andneed not pay personal income tax on theearnings after receiving the dividend Source: Bloomberg, APREA Researchcheque. M-REIT can also benefitinstitutional investors who wish tohave exposure to property by providingaccess to direct ownership throughownership of units. WHO ISM-REIT boasts excellent risk adjusted THE FUNDreturns as evidenced by its veryattractive yield and REIT Managers’ SUITABLEgood corporate governance practices.Furthermore, the structure andregulatory framework of M-REITs is still FOR?not as complicated as REITs from other Investors who seek income and capitaljurisdictions, which are laced with riskier appreciation, and plan to hold theirassets such as residential properties investments for the medium to longand mortgage-backed securities. term.Being a relatively new market, M-REIT Investors who are seeking to benefitprovides the investor an exposure to from investing in real estate across athe high growth potential in Malaysia wide range of sectors and countriesand Asia. This is largely due to Funds “ Malaysia must further through tradable, equity securities.managed by American, Korean, decrease its tax rates onEuropean and Japanese Fund Managers REIT incomes, bringing A Fund tends to outperform:are looking at REITs as an investmentopportunities in Emerging Asian market them in line with charges • In a relatively low interest rateas local currencies are stable and imposed by its neighbor, environment, as yields on REITs may beyields are better than those in mature Singapore. In addition, fine- appealing in comparison to yields oneconomies like Korean and Japan. tuning tax regime for foreign other asset classes.For a brighter M-REIT future, Ting is of institutional investors can • In an environment of gradually risingthe opinion that with better market make M-REIT more attractive rates, as REITs can generally benefittransparency and superior corporate compared to similarly-taxed over the long run and can provide agovernance, it will be only a matter of REIT markets such as Japan, hedge against inflation.time before M-REIT starts to appeal tointernational institutional investors. Thailand and South Korea.” A Fund tends to underperform:He concluded that the availability of aproperty index and REIT index would Adenan Md Yusof, • In periods of rapidly rising inflationallow performance benchmarking Chief Operation Officer, or increasing interest rates, REIT yieldsacross the Asia Pacific thus facilitating may not be as attractive as other assetinvestment decisions. AmanahRaya REIT classes.
POLICY 5MALAYSIAN portion of them have been translated into commercial success, others have brings opportunities and pressure for domestic firms in emerging marketGOVERNMENT been locked away in filing cabinets and libraries or remain as prototypes in economies to innovate and improve their competitive position.SPEARHEADS research institutes.INNOVATION Matching innovation, either big or small, complex or simple, with credible business partners is bound to increase With Malaysia dependentWith the goverment focused on on foreign labour in the the commercial value and culminate inembracing “innovation” as the main successful business ventures which can construction industry, it ismechanism to improve Malaysia provide investment opportunities and imperative to come up withcompetitiveness in the near future, employment and bring profits to the solutions that can reduce involved parties. the workforce and save costsK.P Waran looks at how this conceptcan be adopted by the building and Extrapolating this to the construction as inflationary trends haveconstruction sector to spur growth and building sectors, innovative literally pushed building solutions can introduce new costs through the roofs ofThe establishment of the Special technologies, make work more efficient, skyscrapers.Innovation Unit (Unit Inovasi Khas or increase safety standards and helpUNIK) under the Prime Minister’s Office produce new professionals. For this,to promote innovation in the country in research and development needs toAugust last year has seen a major push attain new heights. In the last decade there has been talktowards forging relations between of speeding up the house-buildinginstitutes undertaking research on The Global Innovation Index (2009- industry, especially with a populationfeasible projects and the private sector 2010) by the European Institute that is growing and more foreignersthat can bring them to fruition. for Business Administration, which deciding to live under Malaysian skies, evaluates innovation readiness in but there has not been much progressInnovation has been identified by the countries, has ranked Malaysia 28 out in this area, with the low and middleGovernment as the main mechanism of 132 economies income group in certain areas stillto attain the objectives of the New unable to own homes due to a shortage.Economic Model. Malaysia is highly ranked in market sophistication with a rank of 5th Focused research by institutions ofAfter eight months of research position, as well as in Business higher learning, research institutes,and discussion, UNIK identified Innovation with a rank of 26th position. developers and others to overcome the22 ecosystem and wealth creation The indicators for which Malaysia scored problems faced by the local buildinginitiatives which were launched on April highly are: industry can help to meet the demand19. These ventures are but a fraction of of a buying market and fulfill themany other innovative projects in the • Investor and creditor conditions aspirations of the Government to havepipeline that are expected to attract (ranked 2nd) a decent roof over the heads of everybillions of ringgit in investment and • Getting credit and protecting citizen and guests who want to makehelp unearth the nation’s intellectual investors (1) Malaysia their home.wealth. • Foreign direct investment and technology transfer (8) The many innovative ideas that havePrime Minister Datuk Seri Najib Tun • Burden of Government regulations been floating in the building andAbdul Razak described the launch as (15) construction industry, but have onlyan “Innovation Lift-off” and added • Culture to innovate (16) and achieved limited success or have yet tothat it was a new direction that would • Company spending on R&D (19) get off the drawing board include usingpositively impact wealth creation, with recyclable local materials such as padispillover effects that would be far- Other indicators that had affected husks (which when burnt becomes 95reaching. Malaysia’s innovation index include per cent silica) to make mortar. innovation potential (78), creative“It will enhance the technical and outputs (44), knowledge creation (34) There is abundant rice husk in Malaysiabusiness skills of the entire supply and researchers in R&D per million and every tonne of padi can producechain. Unlike research and development population (49). about 200kg of husk. Experiments haveinitiatives, these innovation shown that burning the husk into ashprojects have attracted customers The high performance countries for under controlled conditions and addinginternationally-even before their innovation are Sweden, Hong Kong, quick-lime (calcium oxide) can producelaunch,” he told a media briefing last Switzerland and Denmark. cement-like quality products. Blocksmonth. produced from husks can be strong and The quest to “innovate” should be a yet weigh less than conventional bricks.Malaysia’s academics, research strategy for all sectors of the economyinstitutes and corporate organisations including the building and constructionhave long conducted R&D; but while a sector especially since globalisation (continued next page)
POLICY 6 (from previous page) steel-free building materials and many The Government, by establishing more. the Malaysia Innovation Agency to centralise all innovation activities, Also seen in research papers but yet to By coming out with innovative solutions and drafting the National Innovation make it big in our buildings are bricks for the multitude of processes involved Policy to provide the framework to made from by-products of the oil in the building and construction sector, become more responsive and simplify palm industry, sophisticated cooling the local industry will not only benefit guidelines for innovation needs, technology for tropical houses and from the use of these products but will has shown its commitment towards more efficient and cheaper solar panels have the opportunity to export the pushing “innovation” to the forefront of to power homes and offices. technologies to other countries. its agenda to further spur the economy. Malaysian companies, universities This could spawn factories and Developers, by working hand in and research institutes can take the manufacturing plants in Malaysia and hand with research institutes and building and construction sector to draw investors to these businesses but universities, can play an important role new heights if they can hasten research also help bring down costs apart from to be on track with the Government’s and development into producing more introducing new innovations that are efforts. Currently, globalisation has efficient and environmentally-friendly more efficient. created a business environment construction materials with a reduced in which a static business model is carbon footprint that are suitable for Such new innovations, apart from irrelevant, since the global economy the country’s hot and wet weather. spurring the industry, will also help changes so rapidly in so many complex set the tone for universities to emerge ways today that innovation has to be The local and foreign building industries from their silo mentality and tear part of the industry’s DNA from day one. are also looking for solutions offering down the walls that limit their outlook, exceptional thermal performance, encouraging professors and teaching As Prime Minister Dato Seri Najib Tun structures which are more resilient staff to embrace an entrepreneurial Abdul Razak said recently on the topic and durable, gantries that are more bent instead of merely publishing of innovation: “The Government can efficient and can be easily dismantled, papers and securing research grants. provide the playground and facilities, high performance concrete, wastewater but ultimately, you (the private sector) filtration systems that are up to date, The building and construction industry, are the ones who have to play the game. holistic plans for green buildings, new by embracing innovation as its mantra You are the ones who have to win the concepts for ventilation, sophisticated can help promote cutting-edge battles and bring home the revenue”. “smart” systems for automated technology which is essential towards buildings, concrete recycling systems, maintaining global competitiveness. Figure 4: Global Innovation Index Framework Global Innovation Index Innovation Input Innovation Output Business Market ICT & Uptake of Human Institutions Creative ScienceSophistications Sophistications Infrastructure Capacity Output Output Innovation Investors ICT Investment Political Creative KnowledgeEnvironment & Creditors Infrastructure in Education Environment Output Creations in Firms Conditions General Quality of Regulatory Benefits Knowledge Innovation Applications Infrastructure Educational Environment to Social Ecosystem Access to Information Welfare Private Credit Openess to Uptake Conditions Exports & Foreign & & Use of Innovation for Business Employment Domestic Infrastructure Potential providedCompetition by Public InstitutionsSource: UNIK
SECTOR FOCUS 7UNLOCKING The impetus to address the current congestion problems and improve Under the Malaysian Government’s Economic Transformation Plan, GKLTHE MRT’S connectivity in Greater Kuala Lumpur with a view to directing more skilled is designed to be the country’s most important investment destination.POTENTIAL workers into the city centre would be an integrated public transportation Currently the area is the largest contributor to gross national income framework, said Suruhanjaya per capita level, leading seven timesThe government aims to Pengangkutan Awam Darat (SPAD) against Johor Baru, the next largestcapitalise on value appreciation chief executive officer Mohd Nur Ismal urban centre.along the rail route to finance Mohamad Kamal.the project “We currently do not have enough Speaking on the topic “Greater Kuala public transport coverage and there are Lumpur-Klang Valley Mass Rapid Transit pockets of areas that are under-served.by Afiq Syarifuddin (MRT) and Property Play” organised by The naysayers may argue that MRT is t h e M a l ay s i a n c h a p t e r o f t h e not the only solution, but we would likeIf the Government’s aspiration to turn International Real Estate Federation to stress that it is the most importantKuala Lumpur into one of the world’s top (Fiabci), Mohd Nur said the best mechanism in addressing the problem.”20 cities in terms of economic growth solution to Greater Kuala Lumpur’sand liveability is to become a reality (GKL) transportation needs would be “Actually, to handle 25,000 people perwithin the next decade, connectivity the Mass Rapid Transit (MRT) being hour within a radius of 30km, the MRTwithin the city and its environs has to undertaken by Syarikat Prasarana is the only viable solution. The goal isbe considerably improved. Negara Berhad (Prasarana). to get 50% of the city’s population to use public transport,” Mohd NurFigure 5: Sungai Buloh - Kajang (SBK) MRT Line pointed out. SPAD is the authority that supervises the country’s public transportation systems, including rail, bus and taxi services. For example, among the areas that are currently under-served is the Sungai Buloh-Kajang stretch, which houses a population of 1.2 million, of which 400,000 commute to the city centre daily in private vehicles or public transport. “The completion of the MRT along this stretch, and others, will make convenient public transportation available to these commuters as well as the rest of the population, reducing the number of private cars on the road and reducing congestion,” Mohd Nur added. While many see the advantage of the MRT project, it has received some brickbats from the public. Many have cited the high cost of the project (somehave predicted that it could balloon up to RM50 billion or USD11.5 billion) as one reason for it to be put on hold.Source: Suruhanjaya Pengangkutan Awam Darat (SPAD) (continued next page)
SECTOR FOCUS 8(from previous page) Figure 6: Total Length of Sungai Buloh - Kajang (SBK) MRT LineMohd Nur said one of the strategies for Total Elevated Undergroundmitigating the cost of the project wouldbe to employ the Transit-OrientedDevelopment, or TOD, strategy, which Length in KM 51 41.5 9.5essentially means capitalising on the Number of Stations 35 27 8anticipated appreciation in land value, Number of Park & Rides 13 - -known as ‘upside’ in property terms,for areas located along the MRT’salignment.“TOD is a concept many countrieshave adopted to offset the cost of Local Council MPS MBSA MBPJ DBKL MPKJconstructing their MRT lines. Basically,it involves capturing the upside onproperty value near the transit areas. Length in KM 0.8 5.5 7.7 23.1 13.7It is important for the government Number of Stations 1 4 4 17 9to capture this upside as previously,any upside from transit-centricdevelopments in Malaysia have only Notes: Proposed station names are temporary only subjected to approval by SPADbeen enjoyed by the private sector. The and related goverment agenciespublic sector hardly benefited at all,” hecommented. Legend: MPS - Majlis Perbandaran Selayang MBSA - Majlis Bandaraya Shah Alam MBPJ - Majlis Bandaraya Petaling Jaya DBKL - Dewan Bandaraya Kuala Lumpur MPKj - Majlis Perbandaran Kajang Source: Suruhanjaya Pengangkutan Awam Darat (SPAD) Mohd Nur said with the increasing potential profits to be shared. demand for property these days, Prasarana’s portion of the profits there is tremendous potential locked will be channelled back to resolve the in government land located along the construction costs of the MRT.” proposed alignment. “Initially, it won’t be as good as the TOD “TOD will unlock the value of sites applied in Hong Kong and London, but owned by the government and provide there will still be major upside that can the means to finance the project.” be utilised by the government,” Mohd “If you’re looking to handle Nur pointed out. The general plan is for SPAD to identify 25,000 people per hour within available government land located The MRT plan is on public display until 14 a radius of 30km, MRT is the along the proposed alignment and May 2011. SPAD has been holding public only viable solution. The goal station, and hand it over to Prasarana. opinion sessions to collect and collate is to get 50% of the city’s comments and concerns from various Mohd Nur clarified, however, that this stakeholders to assist the Government population to use public does not mean that Prasarana is going in planning the final alignment of the transport.” to become a property development proposed MRT. company. Mohd Nur Ismal Kamal Mohd Nur said while the government is “Prasarana is not supposed to develop, open to listening to the rakyat’s views, Chief Executive Officer, put in funds or construct property, the project itself will go on as GKL is Suruhanjaya Pengankutan thereby exposing the government urgently in need of the MRT. The first Awam Darat (SPAD) unnecessarily to major risk. Its role will phase of the project is expected to kick (Land Public Transport Commision) be to work with real estate corporations off in the third quarter of this year and that will develop the land, with the scheduled for completion in 2016.
INVESTOR PREFERENCE 9 In PERE’s 2010 Global Awards,CAPITALISING The panel session on “Asia’s investibility compared to other regions” was sovereign wealth funds China Investment Corporation (CIC)ON THE ASIA moderated by Joel Rothstein, Partner at Paul, Hastings, Janofsky and Walker and National Pension Service of Korea featured as the Top 3 LPsPACIFIC LLP. The panel speakers comprised David Dickinson (Managing Director of the year. Taking CIC as a caseby Chan Tze Wee and Global Head of Research and study, its global investment Strategy Planning, GIC Real Estate portfolio comprised a 6%The Asia Pacific region’s high growth Private Limited), Jennifer Johnstonefigures are undoubtedly a magnet for Kaiser (Principal, Head of Real Estate, allocation to alternative assetskeen investors, but those aiming to park Asia Pacific, Mercer) and Philip Levinson including real estate. Notably,funds in this market must take time to (Managing Director, Investor Relations a number of CIC’s investmentsbecome thoroughly acquainted with and Business Development Group, The into real estate were significantevery aspect of its unique investment Blackstone Group).landscape and do their homework direct transactions. As of 25before coming in. The business case for an international April 2011, the Financial Times investment strategy in real estate reported a fresh injection ofIn the recent Asia Pacific Real Estate falls on having accessible and usable between US$100billion andAssociation Property Leaders Forum updated information on size and growth2011, one of the sessions covered potential of the market, said the panel. US$200billion funds from thethe hot topic of investibility in Asian For investors, finding their way into Chinese government into CIC’smarkets. A panel of experienced and and around a semi-transparent market coffers, with US$110billionwell-immersed executives discussed is undoubtedly high on their checklist fully allocated for offshoretheir Asian forays from the institutional of challenges. Their advantage willinvestors’ point of view and stated that ultimately lie in their understanding investments.while the Asia Pacific is an attractive of the local market, strongly driven Having said that, they acknowledgedmarket, investors must pay attention by having either superior access to that there is no access to publiclyto the risks associated and study the information or strong local partners. available real estate information inmarket to maximise their returns. certain Asian markets and said the The panel said that increased lack of access to data can ultimately One of this forum’s panel accessibility to country-specific real be detrimental to the potential in sessions saw the participation estate data by the international untapped markets. In the words of a of Mr Stewart Labrooy, Chief audience cannot be underestimated. Access to data allows for comparison private equity fund manager, “If I can spend six months fund-raising and Executive Officer and Executive and benchmarking between different the same amount of time researching Director of Axis REIT Managers markets, monitoring of the health opaque markets because it takes that Berhad. This session discussed of individual markets and most much longer to gather information, I’d “Non-China Emerging Markets” importantly, creates a base for analysis and forecasting. rather raise funds.” (continued next page)and the risk premiums attachedto emerging markets other than Figure 7: Estimated Size of Institutional Grade Real Estate in China. Asia Pacific by Country (US$b), 2010 3,000Over the next decade, the Asia Pacificregion’s share of institutional grade 2,484commercial real estate is predicted to 2,500grow dramatically. 2,000Prudential Real Estate Investorsforecasts the region to grow at a rate of 1,42411% per annum, increasing its current 1,500share of global commercial real estatefrom 25.8% to 36.7%. In value terms, 1,000this is a shift from US$6.2billion to 559US$17.5billion. 415 500 271 204This growth comes at the expense 198 155 173 81 73 39 17 63of Europe and the North American 0region comprising the United States New Zealand Hong Kong Singaporeand Canada. These regions currently Philipines Indonesia Australia Malaysia Thailand Vietnam S. Korea Taiwancover 36% and 30.5% of the global China Japan Indiainstitutional grade real estate marketrespectively. Source: EIU, IMF, Prudential Real Estate Investors Research
INVESTOR PREFERENCE 10(from previous page) Differences on investing in developing • Investors with aggressive growthThe presence of multinational firms Asia Pacific markets versus other strategies need to look for niche areasin new markets plays a big part in developed markets and less competitive segments in localimporting best practices for data markets – these areas have higher riskcollection and performance tracking. • Work around data availability in low premiums attached, coupled with aAs sizeable sovereign wealth funds transparency markets lower presence of local playersexpand their real estate portfolio bothin asset allocation size and location • Recognise a different competitivestrategy, this also increases the flow of environment. Sophisticated markets, Learnings for foreign fund managersinformation on real estate transactions or high transparency markets, are an tapping into developing Asia Pacificand valuations. open playing field where international markets firms benefit from size and scale. In lowOn the Malaysian institutional transparency markets, local industry • Expect to take more time to research investment front, the players have the advantage of local these markets Employees’ Provident Fund’s knowledge. • Keep learning about the local market (EPF) actual exposure to real • Assess credibility and reliability of so that when the opportunity is right,estate investments is currently local partners you are ready to transact at 2%, with a 5% strategic asset allocation target over an • Prioritise on manager skills as this • Acknowledge the imperative to have affects research outcome of markets, a presence in Greater Asia, moving undefined period. Other local for example, accuracy of risk/return into more untapped South East Asian sovereign wealth funds such premiums markets, simply because of growth as KWAP (Kumpulan Wang potential Persaraan, or Retirement •Consider broader investment objectives/measurables apart from • Look beyond investable stock – Fund Incorporated and LTAT yield returns as internal rate of return opportunities in these markets could (Lembaga Tabung Angkatan for these markets is affected by higher be more value-added or opportunistic Tentera, or Armed Forces Fund risk premiumsBoard) have previously invested • Look at alternative sources of • Understand dynamics of local rules information eg. local REIT market together with EPF in club and regulations, for example, tax data strongly contributes to data deals, both in direct domestic advantages in place for local companies transparency in these markets and international real estate and domestic institutions acquisitions.Figure 8: Jones Lang Lasalle Global Real Estate Transparency Index 2010: Malaysia Ranks 25 out of 81 Source: Jones Lang Lasalle
CEO’S SPACE 11 LET’S TALK One particular fund manager, an American Japanese fund which had Hong Kong or Singapore every agency disseminates information about ABOUT OUR invested in Singapore and had an Asian base in Singapore knew nothing of the real estate to the media and to the embassies all over the world about the REAL ESTATE investment opportunities in Malaysia other than what was garnered from Government pronouncements on the latest trends in the property market. Thailand uses the Tourism Ministry to also publish trends and transactions Iskandar region and Penang, and a little and recent high profile investments bit on the Economic Transformation into the country, especially in the motor Programme and the Klang Valley. industry. Local information is everywhere and We have lots of oil and gas and almost every home owner in Malaysia is investment corridor information. an expert on some aspects of Malaysian Investment in the IT industry in Penang real estate. We have valuation firms is growing, yet this information remains providing data and analysis but they within the state or the company. It is do not seem to have a market outside not picked up by any of the Ministries by Kumar Tharmalingam the country since what is published is to showcase investments done in theMPI has had many Fund Managers come usually a few paragraphs in the dailies country. Having seen the seamlessto our office seeking information on or weeklies. delivery of investment information ininvestment opportunities and data on a positive way by other countries, thereproperty transactions that are current. Our main issue is that there is a paucity must be an opportunity for MalaysiaIt is not very encouraging to discover of investment in large chunk real estate to do the same. Information not onlythat investment funds from Japan, by large international funds. Any time has to be topical but also in-depth andKorea, Hong Kong and Singapore have we get some we do make a noise but it is disseminated through a dedicatedso little information on real estate in only heard locally so the foreign media delivery system.Malaysia. have no knowledge. In countries likeMORE with the brand arising from its hotel operations in the Middle East, India Figure 9: Other Incoming Supply of Selected 4-star Hotel and above untilDEMAND FOR and China has helped to fill up hotel rooms in other countries, too. The group 2014HOTELS saw revenue per available room for its Malaysian operation grow by a tenth in Hotel Allson Capital Hotel No. of Rooms 198 2010 compared with the previous year.More international hospitality brands Impiana (extension) 180setting up business to match growing Marriott has not discounted the Traders Hotel 286demand possibility of operating the luxurious The Regent 236 Bulgari Hotels & Resorts brand in Pullman Bangsar 515by Afiq Syarifuddin Grand Hyatt 450 Malaysia. Smith said such a hotel wouldThe hospitality sector in Malaysia fit well into a market that has a niche St. Regis 200is bustling with activity as more clientele and easy air access. However, Source: MyCEBinternational brand hotels set up location would be a paramountbusiness in Malaysia due to increasing consideration and along with it, the Swiss-Garden International Hotels,demand for services above the four-star design and joint-venture partner for the Resorts & Inns central region groupcategory . endeavour. general manager Rayan Komatt said the demand for accommodation is growingHotel management company Marriott Bulgari Hotels & Resorts was introduced in Kuala Lumpur be it for corporate, longInternational Inc, which operates the in 2001 and is a joint venture between stay or leisure travelers. This is reflectedMarriott, Renaissance and Ritz Carlton jeweller and luxury goods retailer in the average occupancy rate for hotelsbrands, is scheduled to open two new Bulgari SPA and the Luxury Group – a in KL hovering around 80%.hotels in Malaysia by the middle of next division of Marriott International –year, bringing its total number of hotels that also manages the the Ritz-Carlton Its newly opened Swiss-Gardenhere to nine. The two new hotels, one in hotels. Residences sits on land measuring 1.7Johor and another in Sarawak, will see acres and has a gross development valuethe group increase its room inventory in Meanwhile, Swiss-Garden International of RM330 million. It features a south andMalaysia by 400 from about the current Hotels, Resorts & Inns will be opening north tower, which are 33 and 37 storeys3,000. five new hotels in Malaysia within the high respectively, and has a total of 478 next two to three years. The hotels will rooms. It provides high-end four-starMarriott International Inc chief be in Butterworth, Penang; Cameron services suites within walking distanceoperating officer (COO) for Asia Pacific Highlands;Senai in Johor; Kota Kinabalu to Chinatown and Jalan Bukit Bintang.Craig S Smith mentioned that familiarity in Sabah; and Kuantan, Pahang.
IN A NUTSHELL 12 STABLE GROWTH FOR Figure 11: Percentage Movement In Number MALAYSIAN REAL ESTATE of Property Transactions by Selected State and Sub-sector, Jan - Dec 2010 by Hazrul Izwan MALAYSIA The Malaysia Property Market Report 2010 launched recently by National Property Information Centre (NAPIC) reported that most of the Residential +7.2 sub-sectors enjoyed positive growth, registering 376,583 transactions Commercial +19.4 worth RM107.44b in the market last year. Industrial +22.1 Agriculture +16.8 As evidence of the proactive measures taken by the Goverment to grow Development +20.8 the economy, the percentage movement momentum for Malaysian real estate continued to record positive results in all four quarters in 2010. KUALA LUMPUR Based on the Report, the commercial sector registered double digit growth of 19.4% in transaction volume compared with 5% in 2009. The Residential +5.2 performance of shopping centres consolidated in the review period Commercial +22.7 and the purpose built-office sector remained promising. The national Industrial +9.2 occupancy rate for purpose built-offices managed to remain above the Agriculture n/a 80% mark. Development -8.6 On a similar note, the industrial, development and agriculture sectors also charted positive growth exceeding 15%. SELANGOR The residential property sector, however, contracted 2.4% compared to Residential +7.3 2009. However, the sector still displayed a stable take-up rate. Commercial +30.8 Industrial +15.7 Interestingly, the Report made positive mention of Malaysia Agriculture +17.0 Property Incorporated’s efforts to market the country’s real estate Development +15.0 internationally. On the local front, it commended the Real Estate and Housing Developers Association for actively promoting home ownership throughout 2010. A total of 47,698 residential units were offered for PENANG sale, higher than 45,909 units offered last year. Residential +10.9 Figure 10: Properties Transacted By Sub-Sector, Commercial +24.5 2007-2010 Industrial +9.4 Units (‘000) Volume and value of transactions Agriculture +37.2 309,455 340,240 337,859 376,383 Development +13.2 250 RM77.14b RM88.34b RM81.02b RM107.44b 200 JOHOR Residential +4.0 150 Commercial +19.8 Industrial +38.1 100 Agriculture +10.5 Development +28.1 50 SABAH 0 2007 2008 2009 2010 Residential -12.3 Commercial -6.3Legend: Residential Agriculture Industrial -10.8 Commercial Agriculture +3.9 Development Development +13.0 IndustrialSource: NAPIC, MPI Research
SNAPSHOT 13 Figure 12: Consumer Price Inflation as Measured by Changes in Consumer Price Index of Selected Economies in the ESCAP Region, 2009-2011 Percentage (%) 14 12 10 8 6 4 2 0 Legend: 2009 -2 Hong Kong Singapore Indonesia Malaysia Thailand 2010 S.Korea -4 China India -6 2011Rates of inflation for 2010 are estimates and those for 2011 are forecast (as of 8 April 2011).Developing economies of the region comprise 37 economies (excluding the Central Asian countries) and the calculations are based on the weighted averageof GDP figures in 2009 dollars (at 2000 prices)Source: ESCAPABOUT USMalaysia Property Incorporated is a Government initiative setup under the Economic Planning Unit to drive investments inreal estate into Malaysia.As the first port-of-call for real estate investment queries,Malaysia Property Inc. connects interested parties throughan extensive network of government agencies, private sectorcompanies, real estate firms, business councils and real estate-related associations.MPI has two core objectives; to create international awarenessand to establish connections between foreign interests andMalaysian real estate industry players, ultimately contributingto real estate investments into the country.For further information andup-to-date tracking of Malaysian real estate data, visit:www.malaysiapropertyinc.comFor further enquiry, write to:firstname.lastname@example.org Disclamer: This report contains information that is publicly-available and has been relied on by Malaysia Property Incorporated on the basis that it is accurate and complete. MPI is not liable if the case proves to be otherwise. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and the same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed.