By Khairie Hisyam
When the Battersea Power Station redevelopment project rolled out its initial phases, the response was phenomenal. But changing times since raise question marks on how it will perform from here on.
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Three years ago, a consortium of Malaysian investors acquired the Battersea Power Station site along with its nearly 80 years of history as an iconic London landmark. In the years since, the ambitious redevelopment of the site had garnered phenomenal response from the market.
Liew Kee Sin
But questions now arise on whether the ambitious GBP8 billion (RM53 billion at current exchange rate) undertaking can sustain its momentum as it comes to terms with a slowing market as well as the departure of its charismatic chairman Liew Kee Sin, whose term ended Sept 30, 2015.
In turn, this raises concerns among stakeholders with interest in the consortium, which include Malaysian property developer SP Setia, blue chip plantation-based conglomerate Sime Darby and pension savings fund the Employees Provident Fund (EPF). The EPF holds a 20% stake in the project, while the other two have 40% apiece.
The Liew factor
When the Battersea Power Station redevelopment project rolled out its first phase in January 2013, the response was phenomenal.
The first phase, called Circus West, comprised 866 homes of which 600 units were taken up in the first few weeks, making it “one of the fastest-selling developments in London in recent years,” said Battersea Power Station Development Co chief executive officer Rob Tincknell.
This was followed by the second phase London-only launch in May 2014, also almost fully sold at the time of writing – only five penthouses from the first phase and “a handful of stunning homes” from the second phase remained, said the company to KINIBIZ via email in end-September.
Part of the spectacular reception to the first two phases, which riposted much early doubts and criticism of the ambitious scale of the redevelopment in style, can be attributed to the leadership of Liew, who was the president and chief executive officer of SP Setia when it led the consortium to acquire the Battersea Power Station site in September 2012.
Among others this was evident in particular by the fact that a third of the buyers for the first phase were Malaysians, reported Bloomberg in September this year, which added that in 2013 half of all new homes in Central London were bought by international buyers.
“Liew is a fantastic marketing man,” said an official close to the project to KINIBIZ, remarking on the man widely credited for the rise of SP Setia over the past two decades into the premier property brand in Malaysia.
However, in early January this year Liew, through his private investment vehicle Eco World Investment, signed a joint venture with Irish developer Ballymore Group for three residential property developments in London. One of them, called Embassy Gardens, is a stone’s throw away from Battersea, according to Eco World’s promotional material.
Effectively becoming a competitor to Battersea, the apparent conflict was followed by news that Liew had tendered his resignation a week after the joint venture was reported, though he stayed on as chairman until the end of his term in any case.
Losing steam?
The third phase of the Battersea redevelopment project, however, fell short of the precedent set by the first two phases, though sales performance remained respectable.
Counting renowned architect Frank Gehry’s Gehry Partners and award-winning British architecture studio Foster + Partners on board the design team, the third phase has only seen a 66% take-up rate.
“We have sold circa two-thirds of the first release of 539 Phase 3 homes that were brought to market towards the end of last year,” said a company representative.
The dampeners are likely a surprise increase in stamp duty for UK properties worth more than GBP1.1 million announced on Dec 3, 2014. In comparison, the third phase, with 1,305 homes, was priced from GBP495,000 for studio units up to GBP3.2 million for four-bedroom apartments, with penthouses going for higher.
In addition, the lead-up to UK’s general elections on May 7 further dampened demand for luxury properties on short-term political risk, which among others included worry of further property taxation after the election.
Yet another factor may have been chairman Liew’s personal dealings which, in turn, would likely have drawn off some buyers from Battersea on the strength of his reputation.
In addition to the Eco World-Ballymore joint venture in the London property market, news broke in October 2014 that Liew planned to raise some RM1.9 billion via a special purpose acquisition company (Spac) in Malaysia.
Essentially a blank-cheque listing, the funds would have been used to undertake property development projects in overseas property markets such as Australia and the UK. Separately, Liew also remarked on record that he would offer the first right of refusal for his Ballymore joint venture stake to the Spac as a potential qualifying acquisition.
While the Spac proposal has since been scrapped in lieu of a traditional initial public offering (IPO) route, the announcement on Oct 17, 2014 might have clouded over the launch of Battersea’s third phase in the same month as Malaysian investors and others who buy on the strength of Liew’s track record may opt to go for his offering under the Eco World banner.
A slowing market
The departure of Liew, potentially game-changing for Battersea’s prospects going forward, came at a time when the London luxury property market is seeing a slowdown in growth.
According to an August 2015 report by Knight Frank LLP, the prime central London property market saw the smallest annual price growth in more than five years at 1.7% as a rise in stamp duty dampened demand, compounded by the retreating yuan exchange rates for Chinese buyers.
Knight Frank defines prime central London as comprising more than a dozen areas in London including the Riverside, covering the Thames riverfront from the Battersea Bridge in the west to Tower Bridge in the east.
The apparent slowdown in growth rate for the luxury market in London is consistent with a slowdown in the overall UK house price increase, which in August this year grew the slowest since June 2013, according to Bloomberg quoting Nationwide Building Society.
“Annual growth (in prime central London) is largely flat at 0.4% when the newer prime central London markets of Islington, Riverside, City & Fringe and Southbank are removed,” said Knight Frank head of London residential research Tom Bill, “which shows how the events of the last 12 months have had a greater impact on longer-established higher-value prime central London markets.”
In particular, the Nine Elms district in which Battersea is located is seeing interest from overseas buyers cooling down. Europe’s biggest project for prime homes, the district is seeing some 18,000 homes planned including 4,000 at Battersea, which makes it the biggest project in the district.
“Foreigners have been the biggest source of demand in recent years, but that appears to be waning,” said Green Street Advisors analyst Hemant Kotak to Bloomberg. “Locals are unlikely to mop up the rising supply, especially given expectations of interest rate increases over the next few years.”
In addition to already-high prices and increase in stamp duty tax, volatile exchange rates in emerging markets are also weighing down on potential buyers, reported Bloomberg in September. “Buyers have been in a restrained mood,” said Knight Frank’s Bill.
For Malaysian buyers, as an example, the ringgit has depreciated from 5.44 to the British pound on Jan 1, 2015 to 6.72 as of Sept 28, a hefty 23% increase in costs to purchase UK luxury homes year to date without taking into account price increases.
Together, the convergence of these factors paints a worrying picture for stakeholders of the Battersea consortium’s three partners – SP Setia, Sime Darby and the EPF. The latter’s presence means over 14 million Malaysians who are its members are vested in the project’s performance.
Indeed, Liew himself has insinuated that the Battersea project is of national interest to Malaysia, something for Malaysians to be proud of. It is with irony that his personal conflict of interest arose while still as the chairman of Battersea which KINIBIZ examines in the next article.
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