Property investors are being “cautious and cautious” in deploying capital in the face of growing economic uncertainty around the world, Singapore’s leading property investment manager CapitaLand Investment said.
Its half-yearly financial results on Thursday revealed that CapitaLand Investment’s profit fell 38% to S$433 million ($316 million) in the first half of the year due to a lower rate of “capital recycling” this year, which the company had adopted as a precautionary position in the face of a world conflict. economy
“We’re being very careful, patient and cautious, as I think many of our peers are…” the company’s chief financial officer, Andrew Lim, told “Squawk Box Asia” on Thursday.
“There’s a lot of uncertainty out there. We’re seeing interest rates rise rapidly in many countries in reaction and in response to supply-side and demand-side inflation, which is something we haven’t seen in a long time of time”.
“And I think a lot of real estate and capital managers are being very careful about deploying capital and underwriting returns, just because we’re so uncertain about what the next six to 12 months will bring from the macroeconomic side.”
The Raffles City mall, operated by CapitaLand, in Chongqing, China in 2019. CapitaLand Investment chief financial officer Andrew Lim said that while property income in China has come off the boil, the company remains committed to investing in Chinese properties.
Qilai Shen | Bloomberg | Getty Images
Lim said capital deployment by companies this year should reach a more “normalized” US$3 billion, down from US$11 billion last year.
A sign of recession?
A warning sign of an economic downturn or recession is how cautious investors are in deploying capital for new investments, economists said.
In a note on recessions last month, Oxford Economics said falling investment is often a “key driver” of recessions.
“In recessionary periods since the 1980s, about half of the decline in Group 7 gross domestic product in negative quarters came from investment, although investment accounted for only an average of 20% in 22 % of GDP,” said Oxford Economics chief economist Adam Slater. in the note
“As a result, short-term trends in investment are of particular importance given current concerns about a possible global recession.”
“An investment freeze in the coming quarters is a major risk.”
We cannot be a leading real estate investment manager in Asia if we do not have a significant investment in China. And we continue to be very constructive with China…long term.
While some indicators showed that investment activity in the United States, Germany and Japan still looked strong, business sentiment about future investment expansions in those places has weakened, Slater said.
The desire to invest in other economies such as China, the UK and South Korea has faded, he added.
Other indicators that hint at investment appetites, such as the strength of stock markets, corporate liquidity and profits, indicate that “an investment freeze in the G7 at the end of the year looks very real,” Slater said.
But while a recession seems likely, a recession can be avoided, Slater said.
The case of China
As for China, CapitaLand Investment’s Lim said that while property incomes have come off the boil, particularly after pandemic lockdowns gripped major city centers like Shanghai in the second quarter of year, the company remains committed to investing in Chinese properties.
In the first half of the year, the China company’s returns suffered not only from slower asset recycling, but also from having to extend rent rebates to tenants in its retail properties.
“I think we are starting to see a gradual normalization of operations and the environment in China. We remain very confident and are ‘long China’ for the long term,” Lim said.
“We can’t be a leading Asian real estate investment manager if we don’t have a significant investment in China. And we remain very constructive with China, again, in the long term.”