Real estate players say eye on cashflow important

Real estate industry players have said it is important for companies in the industry to continue to watch their cashflow. This includes keeping options open for alternative financing and finding new recurring income.

They told an industry conference – Real Estate Investment World Asia 2010 – that they believe the global financial crisis is not over and that it may take at least a year before economic recovery is certain.

Property developers were among those hardest hit by the global credit crisis two years ago. The crisis created tougher borrowing conditions and caused loan-to-value covenants to fall.

This shows the need to ensure sufficient liquidity for companies’ operations, observers say. Although the worst of the crisis appears to be over, they warn that the real estate industry may not be out of the woods yet.

Peter Van Rossum, CFO, Unibail-Rodamco SE, said: “I hope this crisis is going to be over soon. The reality though is that there’s still a lot of moving panels. If I look at Europe, particularly the Greek tragedy, we’re in the middle of Greek tragedy and nobody told us how many acts and scenes it has, so let’s see what the knock-on effect is going to be.

“I think if you look at the stock markets, we’ve seen it just over the past week or so have been quite positive. But in the meantime, it just needs a little fragile piece of news to upset the whole balance again.

“I think, let’s face the fact that it takes another year or year-and-a-half before we know enough of all the issues that’s on the table, we know the impact, and then we can start the path to recovery.”

Observers say diversifying into areas such as hospitality is one way for property players to generate recurring income to mitigate cashflow concerns. Another option is to consider non-traditional forms of funding.

Thio Gim Hock, CEO & Group MD, Overseas Union Enterprise, said: “What we have learnt is that right now, perhaps the market has improved, apart from a little hiccup from the European financial situation.

“We’re looking at other alternative forms of financing, either long-term terms of financing that will ride us through all these ups and downs – I’m talking about bonds, convertible bonds, long-term financing – and we’re going to look at these instruments and get them as a back up ready, so that we can ride the rough waves that might come.”

Wen Khai Meng, chief investment officer, CapitaLand, said: “What we’re doing now is we’re looking for equity funding – develop our private equity fund business.

“Last year, we actually had to IPO, float part of one of our subsidiaries in retail in order for them to continue to have sufficient funds to expand.”

For now, observers are expecting better prospects for the Asia’s property sector. This will be partly boosted by capital inflows, amid an expected currency appreciation in the region.

Standard Chartered believes the office and retail space, in particular, will be supported by strong projections for GDP and retail sales. It expects Asian retail sales to maintain a high single digit growth for 2010 and 2011.

Source: Channel News Asia, 22 Jun 2010