By THE EDGE
Great Eastern Life Assurance (Malaysia) Bhd is stepping up its effort to grow its property portfolio to over RM900 million by year-end from RM653 million at end-2006, via launches of residential and commercial properties.
The residential component, named Seri Hening Residence, will be launched in August, while the commercial component, Wisma Great Eastern Penang, will be ready for occupancy next month.
The company’s executive vice-president and head of finance and corporate affairs Bruce Lee Yee Lam said investing in properties was part of its strategy to diversify its investment portfolio, thus minimising risks and generating higher returns to policyholders.
Apart from the new launches, he said it was also in talks with several parties to acquire commercial properties in the Klang Valley and Johor, preferably worth at least RM50 million each.
“By the middle of this year, including Seri Hening Residence and Wisma Great Eastern Penang, our property portfolio will easily be RM850 million.
“We will continue to source the market for commercial buildings, preferably in the Klang Valley. We are talking to a few parties,” Lee told The Edge Financial Daily in an interview recently.
“We are also negotiating something in Johor. We hope it will be completed in a few months’ time,” he added.
Should the deal in Johor go through, Lee said Great Eastern’s property portfolio would breach RM900 million by year-end.
Lee said the company had invested only about 3.5% of its life fund in fixed assets. Insurance companies are allowed to invest up to 20% of their life funds in fixed assets under Bank Negara Malaysia regulations.
The country’s oldest and largest insurer aggressively acquired land in the 1950s and 1960s and started redevelopment of this land in the late 1990s.
Other commercial properties in its stable include office towers Menara Weld and Menara Great Eastern, and shopping centres The Weld and Great Eastern Mall in Kuala Lumpur.
On Seri Hening Residence, the company’s first residential asset, Lee said all the 113 units of the luxury condominium would be for lease rather than for sale as it saw the project as a long-term investment to generate sustainable yield.
He said the cost of developing Seri Hening Residence was RM132 million, and it was targeting to yield a minimum 5% net annually from the collection of rentals.
Lee added that it expected a take-up rate of 40% in the first six to eight months after the launch, and was confident that the occupancy rate would reach 90% within 12 to 15 months after the launch.
“We look at it (Seri Hening Residence) as a vehicle that will generate the required yield. We are actually using our life fund to invest. We are helping the fund to get a better return. In the long term, it will have capital appreciation,” he said.
The rentals of Seri Hening Residence, which is targeted at the higher-income group and expatriates, range from RM9,000 to RM13,000 per month for a standard unit, and RM25,000 per month for the penthouse.
Lee said a build-and-rent approach was a common property investment strategy for insurance companies worldwide, although it was less evident in Malaysia as an insurer needed to have ample funds to adopt such an investment model.
Great Eastern collects RM4 billion worth of premiums annually. Last year, it generated investment income of over RM1 billion, of which RM46 million was from rentals collection.
“We have a long history of investing in property using the fund. It has been quite successful,” Lee said.
On Wisma Great Eastern Penang, Lee said it would lease out 50,000 to 60,000 square feet and was already in talks with potential tenants.