We recently visited Eco World International (EWI) project sites in London, UK (London City Island (LCI) @ East London, Wardian @ Canary Wharf, Embassy Gardens @ Nine Elms). We came back feeling positive on the prospects for all three projects due to their high connectivity, crowd-pulling factors and diversified target market for each project. To illustrate, LCI, a medium-high-end residential development, is benefitting from the regeneration efforts which have resulted in higher-than-average price appreciation; we also believe this project is aimed at the owner-occupier segment or one that will appeal to the younger population. The highend residential, Wardian, is tapping onto London’s financial hub and will be an ideal rental market for the working professionals at Canary Wharf. Embassy Gardens, another high-end development, will appeal to those wanting a sought-after address in London or/and is also targeted at the owner-occupier market. Post our visit, we are confident that all three projects will be well received as London remains a safe haven for many global investors, particularly under the current volatile environment in Europe and Asia. Thus far, the recently launched LCI has done well with c.85% takeup rate. The media has quoted Tan Sri Liew saying that they aim to list EWI by 1QCY16 via direct IPO market capitalisation, and we still expect ECOWLD to take-up a 30% stake in EWI. This should provide news flow for ECOWLD, which will help buoy its currently depressed share prices. Maintain OUTPERFORM on ECOWLD with unchanged TP of RM2.05, representing a 40% discount to our FD RNAV of RM3.17.

To recap, Eco World Investment Co Ltd (EWIC), a private vehicle of Tan Sri Liew and Datuk Voon, has on the 12th January 2015entered into an agreement with the Ballymore Group to develop £2.26b (GDV RM11.95b based on £1=RM5.30) of London projects. EWIC acquired 75% for all three sites from Ballymore Group in a 75:25 joint venture. The three sites include: (i) London City Island @ Leamouth Peninsula, East London (GDV £616m ), (ii) Wardian @ Canary Wharf (GDV £611m) and (iii) Embassy Gardens @ Vauxhall Nine Elms Battersea Opportunity Area (GDV £1,029m GDV), for a total land cost of £428.7m (c. RM2.27b). The land cost-to-GDV ratio of 19% is deemed reasonable for UK-based projects as land costs tend to be higher in matured countries. We gather that these projects will be launched over a 2-year period.

What keeps London’s property market evergreen. London has been viewed as a ‘flight to safety’ destination for the global wealthy class seeking safe havens and also an avenue to invest new-found wealth, particularly seen from emerging markets like China, India and Russia. London is preferred by many global investors given the high level of regulatory transparency, conducive for foreign property ownership, first-class education and of course, being a must-have address for the wealthy.

Burgeoning population growth in London. London’s population has hit a record high of 8.6m or the highest since its 1939 peak, according to BBC media releases; according to London’s Mayor, Boris Johnson, London’s population could be set to increase by 37% to more than 11m by 2050. This would mean another 50,000 new homes each year are required to meet demand while a lot of the city’s infrastructure upgrades are required, which should cost some up to £1.3trillion. Clearly, there is a mismatch of demand and supply since Central London is only seeing 26,500 units under construction and only 6,000 units were completed towards end-2014 (source: Jones Lang Lasalle, UK Residential Research (JLL)). In fact, JLL forecasts only 21,000-24,000 of housing completions in London for 2015-16.

Not enough of residential supply! The London property market did slow down running up the UK general election but has since picked-up in the early part of 2015. Even though foreign investors are now subjected to the Capital Gains Tax (previously exempted), it appears that housing turnover as a proportion of UK housing supply remains weak, according to the Jones Lang Lasalle UK House Research. The research publication pointed out that there were c.1.2m housing transactions in 2014 which is similar to that in 1980 although inventory has grown, which implies that people are keeping their homes longer, resulting in the lower turnover. Investors should also remember that the planning regulation of London is extremely arduous as the projects must be within the city plans while being accepted by the community.

Another glaring reason is access to development funding, particularly construction, which seems to be tough to come by from the UK financial institutions. This has limited the supply of new homes built. Hence, the driving reason behind the JV between Ballymore and EWI which is on a 25:75 basis is the funding from EWI’s home country to expedite development – they have managed to secure a financing package of £1.1b for the three projects from CIMB and Maybank.

Source: Kenanga Research - 21 Jul 2015