Real estate investors are now being “careful and cautious” in allocating capital in the face of growing economic uncertainty around the world, said leading Singaporean real estate investment manager CapitaLand Investment.
Thursday’s half-year financial results showed CapitaLand Investment’s first-half profit fell 38% to $433 million Singapore dollars ($316 million) as a result of a slower pace of “capital recycling” this year, which it said. company had adopted as a cautionary stance against a troubled global economy.
“We are very careful, patient and careful, as I think many of our colleagues… 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 in many countries rising rapidly in response and response to inflation on the supply and demand side, which is something we haven’t seen in a very long time.”
“And I think a lot of real estate and asset managers are very cautious about deploying capital and ensuring returns, just because we’re so uncertain about what the next six to 12 months will bring on the macroeconomic side.”
Raffles City mall, operated by CapitaLand, in Chongqing, China, in 2019. Andrew Lim, Chief Financial Officer of CapitaLand Investment, said that while real estate revenues in China have been rocking, the company remains committed to investing in Chinese real estate.
Qilai Shen | Bloomberg | Getty Images
Lim said the firms’ capital stakes should reach a more “normalized” SG$3 billion this year, down from last year’s SG$11 billion.
A recession signal?
One warning sign of an economic downturn or recession is investors’ reluctance to allocate capital for new investments, economists say.
In a paper on recessions last month, Oxford Economics said falling investment is often a “key driver” of downturns.
“In the recessionary periods since the 1980s, about half of the decline in the Group of 7 gross domestic product in negative quarters has come from investment, although investment has averaged only 20% to 22% of GDP,” said chief economist. Adam Slater of Oxford Economics. in the note.
“As a result, short-term investment trends are of particular importance given current concerns about a potential global recession.”
“An investment freeze in the coming quarters is a significant risk.”
While some indicators showed investment activity in the United States, Germany and Japan still looked strong, business sentiment about future expansions of investment in those places has weakened, Slater said.
The desire to invest in other economies such as China, the UK and South Korea has declined, he added.
Other indicators of investment readiness, such as stock market strength, corporate liquidity and earnings, suggest that “an investment freeze in the G7 later this year looks very real,” Slater said.
But while a downturn seems likely, a recession can be avoided, Slater said.
As for China, CapitaLand Investment’s Lim said that while real estate revenues have spiraled out of control — especially after pandemic lockdowns in the second quarter of the year gripped major city centers like Shanghai — the company remains committed to investment. in Chinese real estate.
In the first half of the year, the company’s returns from China suffered not only from slower asset recycling, but also from the need to extend rent discounts to retail tenants.
“I think we’re starting to see a gradual normalization of operations and the environment in China. We’re confident and we’re ‘long China’ in the long run,” said Lim.
“We cannot be a leading Asian property investment manager if we have not invested significantly in China. And we remain very constructive on China, again, over the long term.”