In a bid to achieve higher returns by investing more money into real estate, Kumpulan Wang Persaraan (Diperbadankan) (KWAP) is setting up a special purpose vehicle (SPV) that will undertake developments projects on its land, reported The Edge.
Although the SPV’s name is yet to be confirmed, KWAP chief executive officer Wan Kamaruzaman Wan Ahmad revealed that they plan to rope in property developers that can lend their execution expertise.
“This is where we are trying to get better returns because, obviously, we need to raise our returns via property development, but the key is execution,” said Wan Kamaruzaman. “That is why the partnership aspect is crucial — we don’t have the skill to execute.”
The move to set up a property arm is part of the pension fund’s asset reallocation review last year to divert fixed income investments to alternative investments, mainly property.
KWAP eyes to reduce its fixed-income exposure to 46 percent from 50 percent and raise its alternative investments to 14 percent from 10 percent of its asset base.
The reallocation to alternative investments comes on the back of low interest rate environment, which depressed yields on fixed-income investments.
KWAP’s annual gross return on investment last year showed that yields on fixed-income segment stood at below 4.5 percent on average.
Comparatively, the yield on property investment stood at between five percent and seven percent on an income basis, excluding future capital gain prospects, said property consultancy Nawawi Tie Leung executive director Brian Koh.
In March, KWAP paid RM766.02 million for 20 percent of the 760 acre land being reclaimed by Eastern & Oriental Bhd (E&O) for Phase 2 of Seri Tanjung Pinang.
As part of the sale, KWAP would also become a 20 percent shareholder of Persada Mentari Sdn Bhd, E&O’s indirect subsidiary that is undertaking the project. Notably, the deal marks the fund’s first equity participation in an ongoing development.
In January 2016, it completed its RM140 million acquisition of a 1.25acre land from the federal government. KWAP also acquired a 0.72acre freehold site in Jalan Changkat Kia Peng from Guocoland (Malaysia) Bhd for RM87.92 million in 2015.
Wan Kamaruzaman hints that the land acquired from E&O is a strong contender as a potential signature project for its upcoming property arm, considering that it is the biggest land acquisition by the fund in terms of price to date.
“The land itself is worth over RM760 million and will probably keep us busy for 15 to 20 years.”
He also revealed that the fund is weighing to restructure its real estate portfolio, which are currently owned via direct subsidiaries.
“We might form another SPV as the holding company so that all these (properties) will be under it. That’s a possibility.”
Image sourced from Malay Mail
Radin Ghazali, Content Writer at PropertyGuru, edited this story. To contact her about this or other stories email radin@propertyguru.com.my
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