CapitaLand looking for distressed assets

Source : Business Times - 14 Jun 2008

It is on the lookout in Japan, China to help its expansion in these markets

CapitaLand Ltd, South-east Asia’s biggest developer, is looking for distressed assets in Japan and China to help its expansion in the two markets, chief executive officer Liew Mun Leong said.

The developer already runs two property funds in Japan and teamed up with Mitsubishi Estate Co in a Tokyo project worth as much as US$1.5 billion. It runs seven funds in China, and developed office and retail complexes under the Raffles City brand in Shanghai and Beijing.

‘We are always on the lookout,’ Mr Liew said in an interview in Beijing late on Thursday. ‘There will be developers who are under stress, they got land bank and they need money.’

The Singapore developer is expanding in new markets to broaden its revenue base beyond its home market of 4.6 million people. It’s also seeking distressed assets as rising energy and commodity prices and a slowing global economy add to financial stress on companies and stoke defaults worldwide.

The global default rate may rise to 5 per cent by the end of 2008 and reach 6.1 per cent by April 2009, Moody’s Investors Service said last month. The number of corporate defaults worldwide this year has already exceeded the total in 2007, according to Standard & Poor’s. Borrowers have defaulted 28 times on US$18.9 billion of debt, compared with 22 last year and 30 in all of 2006, S&P said.

CapitaLand is seeking distressed assets in China as the country raised reserve requirements for banks for the fifth time this year.

Chinese banks must put aside a record 17 per cent of deposits as reserves starting on June 15, rising to 17.5 per cent beginning on June 25, the People’s Bank of China said on June 7. Investors are also buying distressed assets as banks and brokerages globally raise capital after booking US$391.4 billion of writedowns and credit losses related to sub-prime mortgages.

CapitaLand said in a May 14 presentation that it has a portfolio of 114 malls, including 73 in China and 7 in Japan. The developer said that its assets under management, including real estate investment trusts and funds, rose $1.4 billion to $19.1 billion since the start of the year.

Asked about his outlook on the Singapore property sector, Mr Liew said that he expected the mid-market and lower-end home prices in Singapore to be little changed this year.

Demand for homes is still ‘holding very well’, Mr Liew said.

Prices of mid-market and lower-end homes, usually bought by residents upgrading from government-built apartments, have risen 3 per cent to 5 per cent this year, he said.

‘This year, the lower end will be marginally up or down,’ Mr Liew said. ‘Unless it affects the affordability of the buyers so badly, there is still demand. Our unemployment has gone down and economy in Singapore is good.’ Home sales in Singapore, the fastest-growing market in 2007, are slowing as confidence among prospective buyers were eroded by the sub-prime mortgage crisis in the US and the contraction in global credit markets. The economy may grow as little as 4 per cent, the slowest since 2003, after expanding 7.7 per cent last year, the government said.

In the first quarter, residential sales fell to 787 units from 1,449 in the previous three months, according to the city’s Urban Redevelopment Authority.

CapitaLand said in January that it plans to offer fewer homes for sale this year in Singapore, between 800 and 1,000, from 1,200 in 2007. It also said that prices may rise as much as 10 per cent. City Developments Ltd, Singapore’s second-biggest developer, said last month that it was delaying sales of new residential projects.

Home prices in Singapore rose 3.8 per cent in the first quarter, the smallest gain in a year, after rising 31.2 percent in 2007. — Bloomberg