This article first appeared in The Edge Malaysia Weekly on March 26, 2018 - April 1, 2018
THE Social Security Organisation (Socso) has acquired a 1.87-acre (0.76ha) land parcel that was the site of the former German embassy for RM323 million cash from Malaysian Resources Corp Bhd (MRCB). The deal valued the land, in the prime location of Jalan Kia Peng in Kuala Lumpur, at RM3,973.77 psf compared with the RM3,188.25 psf (RM259.15 mil) paid by MRCB in April 2015.
While it is not unusual for institutional funds to invest in properties, the normal route is to buy developed commercial properties for recurring income or enter into joint ventures with developers and gain profit from the sale of properties. It is not often that they will buy land because land, by itself, generates no income until it is developed. This means Socso will not be earning any income from the RM323 million outlay unless it develops the land quickly or sells it for a profit later.
Associate editor Vasantha Ganesan posed questions to Socso on the rationale for its purchase and this was the reply given by its chief investment officer Dr Suzana Idayu Wati Osman.
The Edge: Why did Socso buy this land?
Suzana Idayu: Socso always strives to enhance the sustainability of its fund to better meet its long-term financial needs and obligations. In order to achieve this objective, Socso implements investment strategies and governance that are in line with market best practices, especially with regard to a social security organisation.
Our investment strategies include, among other things, strategic asset allocation (SAA), which takes into account the long-term risk and return potential of each relevant asset class. The portfolio of these asset classes is optimised to closely match Socso’s long-term financial needs and obligations. One of the asset classes relevant to Socso is alternative assets. Investment in land qualifies as part of alternative assets.
As the land already has a development order to build a 79-storey tower with serviced apartments and a hotel, will Socso go ahead with this plan?
With regard to our investment in this land, we have our own plan to extract the potential value as guided by our investment strategies and governance. Our plan is designed to ensure long-term source of quality income, in line with the nature of any social security organisation that inherently assumes long-term liabilities in order to meet its objective in providing social security protection to the insured persons and their dependants.
The previous land owner (MRCB) applied to DBKL (Dewan Bandaraya Kuala Lumpur) for a plot ratio of 1:12 for the land and subsequently obtained a conditional approval from DBKL in August 2017.
Notwithstanding the current development order, the development options remain open and the timing of our plan to extract the potential of this land would be based on factors such as economic and market conditions, potential collaboration and financial structure, etc.
When was the decision to venture into property development, as opposed to property investment, made?
We consider this land acquisition to be investment in nature, and in line with our investment strategies and governance. The sale and purchase agreement was signed on March 19, 2018, as per the announcement made by the vendor to Bursa Malaysia.
As shared in our answer above, whatever form it (the land) takes in the future, (it) remains as (an) investment (and) Socso will take into account the long-term risk and return potential of such investment.
We understand that Socso has been looking for buildings to start a medical centre too. Can you confirm this? Why the interest in going into the medical business?
Socso has been presented with many investment proposals. The interest to go into any investment opportunity will have to be in line with our investment strategies and governance.
As mentioned above, should Socso be presented with opportunities with similar or better potential, we are open to consider such opportunities, so long they are within our investment capacity and risk tolerance.
Which building does Socso currently own that provides it with recurring income?
Menara NU2 at KL Sentral.
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