Pull of the overseas property markets

KUALA LUMPUR: Investing in the overseas property market seems to be popular among Malaysian investors despite the eurozone crisis, which is affecting economies worldwide.

Among the target markets are the UK, France and Germany.

Firms like Permodalan Nasional Bhd (PNB), which has three London properties in One Exchange Square, 90 High Holborn and Milton and Shire House, and Syarikat Takaful Malaysia, which is scouting for commercial buildings, or offices in London, are just a few proofs that Malaysian companies are investing in overseas property markets.

The UK, particularly London, is the centre of attraction for international investors who want to invest in commercial property markets, said Amiri Capital UK partner Bindesh P. Shah.

This, he said, is due to the UK having a large liquid market with go-od legal and regulatory infrastructure, therefore making it easy and reliable both to buy and sell property.

The full repairing and insuring (FRI) leases in UK makes the obligation of up-keeping the property fall on the tenant, therefore making it relatively easy to manage.

"What it means is when you buy a building, every year, as the investor, as the owner of the building, your responsibility is just to make sure the building's there and collect your lease payment, but the responsibility for maintaining the building both inside and outside rests with the tenant.

"Whereas in many other markets, responsibility of the maintenance of the buildings still rests with the owner of the building," Bindesh said in an interview with Business Times.

Bindesh said the sovereign debt crisis that is linked to Europe has created uncertainties among international investors and many of them fail to understand the heterogeneous nature of Europe.

"The debt crisis is referred to the European debt crisis when in fact it is a debt crisis of certain countries in Europe and so, not every country is in that crisis situation ... Main economies in Europe including Germany and France, have strong fundamentals," he said.

He also said there are not many barriers for Malaysian investors to go into the residential and commercial property markets in the UK and Europe. In fact, now is a good time to invest.

"It's an old contrarian investing idea, which is whenever everyone else is rushing out of the market it usually means there's actually some good opportunities being left."

Another Amiri Capital partner, Richard Ellis, said there has been less investment in European property markets, so there is a strong compelling reason to invest there.

"There hasn't been a rush of capital into these assets and there's still good pricing on some really good-quality buildings," he said.

Speaking on two different types of property in Europe - core and opportunistic - Ellis said the sovereign debt crisis, while serious, can and is being resolved.

When investors invest in the core properties in Europe, he said they will benefit from capital appreciation when the capital flows return to the main markets.

Core properties are the most liquid, most developed, least leveraged, and most recognisable properties. It tends to be held for a long period of time and the majority of its income comes from the cashflows instead of value appreciation.

Core property is seen by some investors as a substitute to bond, said Ellis, adding that rather than investing in a government bond, they invest in core property as it has higher returns or yield. "So, rather than getting one or two per cent return for a bond, you can get up to seven per cent from a property."

Ellis also said the shortage of bank liquidity combined with many distressed investors as well as refinancing deadlines looming means that there will be opportunities to acquire good-quality buildings at good prices, hence the opportunistic properties.

By Business Times