PETALING JAYA: The Employees Provident Fund (EPF) will continue to invest in overseas properties in Japan, UK, France and Germany because it has to look for a steady dividend stream for EPF contributors, which number about 14 million.
“It is more out of necessity because we have become a big fish in a small crowded pond (with Permodalan Nasional Bhd, Lembaga Tabung Haji and Retirement Fund Inc or KWAP),” said the EPF head of global real estate private markets department Kamarulzaman Hassan.
He was presenting a paper at a seminar “Positioning Malaysian Real Estate: Post GST and 11th Malaysia Plan 2015” organised by the Malaysia Property Inc yesterday.
EPF has invested more than £1bil in the UK and more than 1 bil lion euros in France and Germany since 2008/09. It can invest up to 4%-5% of its funds in domestic and foreign real estate.
It has the mandate to invest up to 26% of non-ringgit denominated assets, which include equities, bonds and real estate. It has a total fund size approaching RM700bil.
Kamarulzaman said the fund has not exceeded these perimeters.
On the volatile global situation today, he said there were challenges but there were also “opportunistic deals here and there.”
EPF has invested in the logistics sector in Japan and Europe. This is a growing sector in Europe, Japan and in Asia.
It is looking at retail sector, office sector and logistics in the UK and Europe.
On EPF’s return on investments, Kamarulzaman said its average net yields were 7.5%-8% for logistics, 6.5%-7% for retail and 6%-6.5% for the office sector.
He said EPF has to go abroad because of diversification as it is in the entire spectrum of the local real estate market.
It likes the mature market in Europe and Japan because there is more liquidity in Europe and it is a far larger market.
There is also the issue of market timing as property is cyclical.
Prior to the 1997 Asian financial crisis and the 2007/08 global financial crisis, EPF only invested in Malaysia.
“We were badly hit in 1997 because we put all our eggs in one basket. As we progressed, we believed that diversification is important in order to reduce risk for our contributors,” he said.
The UK offers unbreakable leases of between 20 and 30 years, Europe 10 to 20 years compared to two years in Malaysia, although there are some exceptions.
“So we basically take a longer term investment strategy because we are providing dividends to contributors,” he said. It is not directly investing in US properties because the returns are low compared to other parts of the world.
The mature markets are also deemed to be more stable although each country is different.
A huge challenge in the local real estate market is that it takes more than a year to complete a transaction, whereas in the UK, it is as short as two months.