Friday Asia Digest – Rise of Malaysia / The European Connection


Malaysia continues to cement it’s status as one of Asia’s top rising stars, as mentioned in last week’s digest, with demand for retail and commercial space increasing rapidly – this in spite of relatively high vacancies, which have kept rents stagnant in the last 2-3 years. Investors and analysts do not seem to be viewing this as an issue, however, pointing to the re-directing of corporate capital towards the distressed European and US markets – where recent rumours of recovery seem to have been premature – as the main reason rent hasn’t yet caught up with Malaysian property prices, which are continuing to rise rapidly.

Union Investment Real Estate, a large German investment group, is only one of many who have recently entered the Malaysian market, by acquiring Cap Square Tower, in Kuala Lumpur (pictured on right), for RM440 million (141.3 million USD). The group plans to double their investments in the country in the near future. The group prefers to purchase existing buildings, echoing similar sentiments by other institutional investors, as soaring building costs are putting developers off new projects world-wide, particularly in the bustling Asian markets, known for decades as the world’s “cheap labour” capitals – a trend which is quickly reversing, as statistical data reveals. The group also plans the launch of an additional 1 Billion Euro fund, aimed at expanding their share in a large and diversified Asian market. Ulrich Dischler, the group’s managing director, was quoted saying that the German giant’s confidence “stems from Asia’s robust economic fundamentals, which includes its youthful demographic, dynamic workforce, rising income levels, growing consumer base, sound public finances, sizeable external reserves and healthy corporate balance sheets.” As a result, he claims, the firm is confident that rent, prices and occupancies will pick up in 2013-2014 all over the continent, as indeed seems to be the case in many countries in Asia in the first half of the current year.

Another giant planning on re-entering the global real-estate arena with two new funds worth 750 million USD is Leon Black’s Apollo Global Management. Black spun off Apollo’s real estate operations in 2000, only to reenter the industry eight years later to help reduce the firm’s reliance on revenue from traditional leveraged buyouts. About 388 buyout funds tied to Asia are in the market to raise a combined $130 billion, according to Preqin, a London-based firm that provides research on alternative-asset managers. These include KKR & Co., the private-equity firm run by Henry Kravis and George Roberts, which got $3 billion in commitments during the initial fundraising for its second Asia-focused fund.

Asian Money & Soccer May Hold Key to Euro Revival

More and more Asian money seems to be actively directed towards European soccer clubs, a trend that seems to be intensifying, with the latest indication given last week, when state-owned China Railway 15th Bureau Group confirmed to be in talks with Inter Milan, the storied European club, to build a home stadium for the Italians by 2017. Chinese, Thais, Malaysians, Hong Kongers and Singaporeans are all involved in one way or another in European soccer clubs and enterprises, reveals a new book from the German Council on Foreign Relations, which explores how Europeans view Asia. Malaysian money now owns two clubs in the U.K., and Birmingham City, as it turns out, is owned by Carson Yeung, a Hong Kong billionaire.

Inter Milan didn’t identify who was involved, saying only on its Web site that it was “Chinese investors.” The Moratti family will keep the control of the company, while the group of Chinese investors will became the second-largest shareholder,” the company’s media release claims. China’s railway construction companies, hit by a slowing economy at home and various scandals, including a high speed train accident last year, are seeking opportunities abroad with renewed vigor. The new stadium at San Donato in Milan will be one of the biggest in Europe, according to CCTV, the state broadcaster. Chinese soccer suffers from corruption and a lack of professionalism, and there are plans for Italy, home to some of the world’s greatest teams, to train Chinese players in the new stadium.


Global Gossip

* India, regrettably, stubbornly refuses to “straighten its act” and become an Asian property giant, despite the promising property market boom evident in recent years, with the Indian Rupee still experiencing historical lows against the US dollar. A USA state-department report reveals that the country’s bustling real-estate market, as well as other fast-flowing market segments, is widely used for money laundering. “High-level corruption both generates and conceals criminal proceeds. Illicit funds are often laundered through real estate, educational programs, charities, and election campaigns. Companies use trade-based money laundering to evade capital controls,” the International Narcotics Control Strategy Report 2012 has said.

* Overseas money continues to flow into Australia’s hotel and commercial markets, where the country’s mining boom swiftly fills up accomodation vacancies, driving hotel vacancies averages around the country to heights not experienced in Australia for decades. The fact that Australia’s mining moguls are steadily sending their money overseas, to Singapore and Hong-Kong, China and Japan, as well as the fact that various sources warn that the mining boom has passed its peak, and has, at most, another two years left in it – doesn’t seem to deter the investors, who continue to flock to Australia’s shores, buyoed by the speculative promise of capital gains. Making headlines this week, Australian Paramatta Lord Mayor Lorraine Wearne recently spent $60,000 wooing developers and banks in Singapore to get behind her vision for Sydney’s second CBD.

* Hong-Kong property prices continue to “defy gravity”, steadily climbing despite whispers and promises of massive government land sales, stricter property purchase regulations and curbs, and the city-state’s positioning as the world’s most expensive real-estate market. The most amazing thing is, perhaps, that most analysts seem to agree that this trend is nowhere near its end, in stark contrast to evidence, which suggests Hong-Kong is in the midst of one of the world’s most severe property price bubbles. Interest rates in Hong Kong are at a historical low, currently in the range of around 2.1–2.8 per cent. This is due to the fact that Hong Kong’s money supply is more closely linked to US where interest rates are at an all time low. This has led to cheaper cost of borrowing money, helping to strengthen property purchases as many buyers now find servicing a mortgage cheaper than paying rent.

* Andrew Wong, chief investment officer of equities, AmInvestment Bank Bhd’s Funds Management Division, said Asia-Pacific REITs have outperformed global REITs. “We are starting to look more into Japan Real Estate because its economy seems to be healing”, he was quoted as saying. His comments further strengthen the global view on Asia-Pacific economies generally, and the steady recovery trend of Japan (pictured on right) specifically. Japan’s economy has been on a steady down-trend for the past two decades, since it’s real-estate bubble burst in the early 1990’s – but the region’s long-dormant property market remains the 2nd to 3rd largest economy in the world – a recovery there is the “icing on the cake” on what is already considered to be one of the world’s best and safest cash-flow dividends environment.

(Partial list of Sources – “Business Times“, “Business Week“, “Daily Telegraph“, “New York Times“, “New Strait Times“, “Economic Times“, “Bloomberg“,”World Property Channel“)

(Pic 1 – Kuala Lumpur Central Business District / FullOfTravel, Pic 2 – Nagoya, Japan / Ziv Magen)

About Author

Ziv Magen

Ziv Magen (G+) is an Australian, and has been living alternately in Japan and Australia for the past decade. "Born and bred" an IT project manager, he has made the transition to full-time real-estate investing several years ago, and subsequently opened a buyers' and proxy agency - assisting others in remotely capitalising on Asia's booming property market.

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