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Overseas assets crave to continue [25-02-2013]  
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THE strong interest shown by Malaysian financial institutions and other investors in overseas real estate since 2009 is expected to continue this year even as political and economic troubles in the eurozone unfold, says an international property consultancy.

CB Richard Ellis (Malaysia) Sdn Bhd (CBRE) executive chairman Christopher Boyd says they expect to see strong interest in both prime central London and Australian cities like Sydney, Melbourne and Brisbane this year.

Says Boyd: "The major Malaysian institutions are not done yet."

He was speaking after a seminar "Navigating Corporate Property Investments in London and Australia" recently.

"Both (London and Australian cities) offer an opportunity to diversify and they are large markets where good investment-grade buildings become available on a regular basis," he said.

However, he said the security of such investments depends to a large extent on the stature of the tenants, and buildings in the world's major financial centres are occupied by some of the world's largest and strongest multinational companies.

This, he said, is the attraction for Malaysian funds which are responsible for managing the assets of their unit holders and shareholders.

In an e-mail reply, CBRE Ltd senior director for Central London Capital Markets Justin Berry said a total of £2.6bil investments flowed into London's commercial property investments from Asia in 2012. Of the £2.6bil (which excludes the purchase price of Battersea Power Station by Malaysian consortium comprising SP Setia Bhd, The Employees' Provident Fund and Sime Darby Bhd), £1.3bil or 48% were from Malaysia and £28mil (1%) were from Singapore.

On his outlook for this year, Berry says "demand will remain strong".

"We expect to see an increase in the proportion/percentage of investment from Asian buyers and an increase in private Asian investors, as most investments to date, have been from institutional investors."

"London has a transparent legal system, easy access to information and data, political stability and is a safe haven compared with other volatile markets. London has also reclaimed the number one global financial and business centre ranking," Berry says.

In addition, the UK real estate investment market has benefited from the depreciation of the sterling compared with other currencies and further benefits from being a European market that is outside the Euro, Berry said.

CBRE's senior director for international investments Michael Andrews says foreign investments into Australia's commercial office sector have been strong the last three years. Among the top investors are Singapore, Canada, Hong Kong and Malaysia.

Andrews says in 2012, just short of A$1bil were invested by Asia-Pacific investors in the Australian commercial property market. The majority of this was sourced from Malaysia and Singapore; A$435mil was attributed to Malaysian sources and A$315mil to Singaporean sources.

"We do expect continued growth in foreign investment activity from all sources Asian and non-Asian investors. Domestic investment activity also picked up in 2012, meaning that there is more competition, compounded by limited new supply coming onto the market," he said.

"2013 is going to be an interesting year because the local funds are investing in Australia and greater competition is expected from domestic players." He added that investors are attracted by a stable and transparent market with high investment returns and sound economic fundamentals. The wide margin on interest rates and yields compared with other markets are attracting foreign capital, reflected in the strength of the Australian dollar.

Separately, The Financial Times reported in early February that the expected wave of distressed sales, for which tens of billions of dollars had been raised, would not materialise.

CBRE chief executive Bob Sulentic, whose company is the world's largest manager of property funds, says "buying distressed real estate is going to be much more competitive than people had predicted".

"There was a belief that there would be a flood of assets coming to market at rock-bottom prices, but it is never going to happen. Sellers of distressed real estate have learnt to be much smarter about how and when they trade and a lot more will be held through the cycle," he says.

The prediction from Sulentic, whose company has US$92bil of property under management, is an ominous one for the the scores of private equity funds in the United States and Europe that have built up financial firepower in anticipation of a sell-off in real estate by financially constrained landlords, the FT reports.

The lower-than-expected level of distressed property sales has already put pressure on real estate private equity firms. particularly those focused on Europe.

He also tells the FT that the commercial property market is increasingly drawing in large, institutional investors, including pension and sovereign wealth funds, and high net worth individuals who are tiring of the low yields on offer in the global bond markets.

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