Middle Eastern Investors

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Middle Eastern Investors
Flock to Asian Real Estate

By CRIS PRYSTAY
Staff Reporter of THE WALL STREET JOURNAL
January 11, 2006; Page A13

SINGAPORE - Flush with cash from the oil-price boom, investors in the Middle East are looking for new places to put their money. That is particularly good news for developers in Asia's largely lackluster property markets.

The weaker U.S. dollar and renewed confidence in Asian economies -- and currencies -- make Asian property look better than ever, Middle Eastern bankers say. Investors from the Persian Gulf also are finding a more welcome reception in Asia than in the West, post Sept. 11, and are discovering that prices in some nations have managed to avoid the sharp appreciation elsewhere in the globe.

For places like Malaysia and Singapore, the influx of investment is an early signal that years of effort to attract Middle Eastern investment are starting to pay off. Singapore has signed free-trade agreements with two countries in the Middle East and is negotiating four others. The city-state, which hopes to position itself as a gateway to Asia for Arab investors, has sent a stream of trade missions to the region during the past two years.

Malaysia, a majority-Muslim nation, has marketed itself aggressively in recent years as an ideal tourism destination for Arab travelers, who felt increasingly uncomfortable visiting the U.S. and Europe after the September 2001 terrorist attacks, when anti-Arab sentiment spiked. Arab tourism to the U.S. has continued to decline throughout the war in Iraq. Meanwhile, the number of Middle Eastern tourists visiting Malaysia has surged. In the first nine months of 2005, the number was 130,190. That topped the total for all of 2004 -- 126,050 -- which was 57% higher than that in 2003.

"Sales [to the Middle East] were a bit slow until 9/11 happened," said Norman Nathan, director of S.K. Brothers Realty, a Malaysian real-estate agency that is marketing Malaysian developments in Bahrain and Dubai. Middle Easterners, he added, "started coming in big numbers as tourists, took a look at the place, and now they're looking at investments and business ventures."

Growing interest in Southeast Asian property could prove a new engine of growth for the luxury market in developed cities like Kuala Lumpur and Singapore.

In Kuala Lumpur, S.K. Brothers Realty recently formed a joint-venture company with Hassan Ebrahim Kamal, managing director of Bahrain Properties Group, to market Malaysian condos and other investments in the Gulf.

"The price of residential property [in Bahrain] increased 200% in the last three years," said Mr. Hassan. "In the last 50 years, we've been dealing with America and Europe. Now people want to go East."

Last month, Singapore-based CapitaLand Ltd., one of Southeast Asia's biggest developers, set up a real-estate company that will offer investment-advisory services to the Middle East and develop projects in Malaysia, China, Japan and elsewhere in Asia. The company said it planned to offer $500 million of real-estate investments to investors in the next two years. CapitaLand said the company will comply with Shariah, or Islamic legal codes. This means it will only invest in real-estate projects in which tenants and businesses aren't engaged in activities Islamic codes consider unlawful.

In June, the Malaysian unit of Kuwait Finance House Group, which is 49% owned by the Kuwaiti government, and Singapore-based asset-management company Pacific Star Group set up a $600 million joint venture Asian real-estate fund that complies with Shariah.

Individual investors also are snapping up properties. The Al Batha Group, a diversified conglomerate based in the United Arab Emirates, bought 13 luxury units in Suria Stonor, a high-end property under construction near the Petronas Twin Towers in downtown Kuala Lumpur. Mr. Nathan estimates that individuals from Dubai, Bahrain and Saudi Arabia, meanwhile, have snapped up about 15,000 apartments in the Malaysian capital in the past four years.

Currency fluctuations are driving some of the activity. Middle Eastern currencies are pegged to the dollar; investors there have lost money as the dollar has sagged, bankers say. Many Asian currencies, meanwhile, have strengthened.

Parts of Southeast Asia also have been partly immune to the spectacular appreciation of property elsewhere. Prices for private residences in Singapore rose just 0.9% in 2004, perking up for the first time since the 1997-98 Asian economic crisis. With a strengthening economy in the second half of 2005, prices rose 3.8% during that year, according to preliminary government estimates.

Residential property prices in Kuala Lumpur, meanwhile, began cooling in 2005 after several years of steady, though not steep, gains. Developers have been cranking out dozens of luxury projects in the city, and some now even worry about a glut.

Other Asian markets also are gaining gloss for investors from the Gulf. Singapore's CapitaLand last year set up a Shariah-compliant $300 million property fund with Arcapita Ltd., a Bahrain-based investment bank, that will invest in Japanese property. CapitaLand and Citibank, a unit of Citigroup Inc., also set up a $400 million private-equity fund that will invest in property in China. CapitaLand put in $150 million, Citigroup Property Investors put in $20 million, and the remaining $230 million was sold to Citibank's global private-bank clients. More than one-third went to clients in the Middle East.

"Interest was very high," says Quek Kwang Meng, managing director and head of Asia-Pacific real-estate investment for Citigroup Private Bank. "If we'd started the road show in the Middle East, we would have sold 100% [of the fund] there."