Viewpoint – Real estate: Malaysian harvesting of London profits

Categories: Viewpoint

As the plans of Islamic investors for 2017 have been finalized and, in many cases, shared with the world, I’ve picked up on a noticeable trend of what could be interpreted as Malaysian investors choosing to exit the London real estate market.

First to share with the Malaysian press was the intention of the Federal Land Development Authority, better known as Felda, to sell its Park City Grand Plaza Hotel in London’s Kensington for an amount in excess of GBP90 million (US$112.53 million).

This was fairly quickly followed by an announcement from the Employees Provident Fund (EPF) that it intended to sell its St James Square property in the prime West End of London, as well as its Tower Bridge House office property in St Katherine Docks on the edge of the financial City of London. With a combined value reportedly of around GBP400 million (US$500.14 million), this is even more significant.

While material, both institutions are reporting that the moves are motivated by a desire to harvest a profit, not from any fundamental change of strategy or sudden dislike for what London has to offer. Felda bought its hotel in 2014 and if it achieves the targeted price, will realize a 50% profit, which would be impressive.

Meanwhile, EPF was among the first Malaysian institutions to come to London in 2010/2011. The sale of these two assets would be at yields materially below 5%, allowing a very healthy profit and the capital to be redeployed elsewhere, with EPF confirming that the capital would be retained for new overseas investments.

Supporting this theory that Malaysians aren’t running from the UK was Tabung Haji’s announcement recently of its allocation of RM2 billion (US$449.34 million), to new investments in the UK, as well as Australia. All very positive.

So, while the Malaysian institutions are looking to reinvest, the big question is what to purchase next? With the pound relatively weak at the moment, but the UK having the strongest GDP growth of any G7 country, this combination is proving to be attractive for many overseas investors, with London yields remaining very low.

Perhaps it’s time for a major acquisition outside London?

Original article appeared in Islamic Finance News.