The Star: 03 September 2007

FOREIGN institutional funds and investors are venturing into Malaysia in a bigger way to take advantage of the strong upside potential of the country's real estate market.  

The Klang Valley, notably Kuala Lumpur, which has been the hotbed for property developers and investors, continues to attract substantial interests from foreigners.  

Other regions include the Iskandar Development Region (IDR), which recently attracted multi-billion investments from the Gulf Cooperation Council (GCC) countries, and the Northern Economic Corridor.  

Besides looking for good bargains in the commercial and high-end residential sectors, foreigners are also keen to undertake property development projects in strong growth regions. 

Singaporean institutions such as the Government of Singapore Investment Corp (GIC) and CapitaLand Ltd, for the past decade, have made their way across the causeway and taken up equity stake in established property companies and also, ventured into property development in Malaysia. 

In the past two years, the trend has also caught up with the Middle Easterns and Europeans.  

Several recent major office transactions include Macquarie Global's purchase of Empire Tower, Crown Princess Hotel and City Square Shopping Centre in Kuala Lumpur for RM680mil, Injaz Mena Investment's purchase of Menara ING at RM495per sq ft (psf) and Injaz AsiaEquity's purchase of Kenanga International at RM555psf. 

A survey by Real Estate and Housing Developers Association (Rehda) showed that enquiries from foreigners increased 13% in the second quarter of 2007.  

SP Setia Bhd group managing director Tan Sri Liew Kee Sin said the recent spate of multi-billion investments by Middle Eastern consortiums in the property sector “is just the tip of the iceberg and is indicative of more exciting times to come.” 

“The joint public-private sector initiative to market Malaysia globally is targeting to attract RM20bil in-flows of funds into the economy,” he added. 

Liew said city centre real estate with integrated amenities under the same roof were popular, as foreigners tend to treat their properties as second home and holiday escapade.  

Green-themed developments such as hill or beach resorts where residents can get close to nature and soak in the laid-back lifestyle are also catching up.  

Established property developer Datuk C. K. Wong said Malaysia's strong development and economic growth had resulted in an upturn in its tourist, residential and commercial property markets.  

Many international real estate investors are considering Malaysia as a highly lucrative option for three main reasons - well-priced property, strong economy for sustainable growth and good yields over the medium- to-long term.  

“In the past two years, Middle Eastern investors had been coming into the country in a big way. Both their institutional and individual investors had invested close to RM5bil in real estate to-date. 

“The recent announcement that they are investing another RM4.1bil in the IDR will make them the biggest real estate investor in the country, surpassing Singapore, which is said to have some RM5bil here,” Wong said.  

The growing expatriate community, under Malaysia My Second Home (MM2H) or direct foreign investment in real estate, is also giving rise to demand for quality new accommodation in up-market central districts.  

Mah Sing Group Bhd president Datuk Leong Hoy Kum said foreign real estate investment trusts (REITs), property funds and pension funds were driving interest in the local market.  

With yields in certain countries below 4%, Kuala Lumpur's office assets - yielding 6% to 8% are very attractive, he said, adding that the sectors with the most appeal for international investors included residential, commercial and tourism-related properties.  

Leong said foreign funds and investors from Singapore, Indonesia, Hong Kong, Japan, Australia, Europe, South Korea and the Middle East were going for medium to high-end gated and guarded residential projects, prime condominiums and service apartments in and around the Kuala Lumpur City Centre area, Grade A office towers in Kuala Lumpur's central business district, development land in the IDR and quality retail malls in major cities. 

Echoing the strong foreign interest in the local market, Zerin Properties chief executive officer Previndran Singhe said: “We have seen major inflow of funds from the Middle East, Singapore, Hong Kong and recently Japan. I think recent acquisitions by CapitaLand and Maple Tree together with Kuwait Finance House's active acquisition mode is prove of the interest heating up.”  

Generally, their interests are for niche residential, including luxury condominiums, gated bungalows and resort residences; and commercial properties like en-bloc offices, malls, hotels and warehouses with good tenants.  

DTZ Nawawi Tie Leung executive director Brian Koh said while office sector had always been a favourite, retail and hotels, as well as high-end residential projects were increasingly growing popular. 

“The amount of foreign investment continues to increase and international investment into the property sector in Malaysia is predicted to grow at unprecedented levels. Foreign investors are also more comfortable to undertake joint ventures with local developers, or underwrite projects financially,” Koh said.