Asia-Pacific News

One of Asia's largest property developers posts strong growth, but sees 'unpredictable' conditions ahead

Property cooling in China could weigh on market: CapitaLand

Southeast Asia's largest property developer, CapitaLand, on Wednesday announced that it had seen a 11.7 percent increase in full year profit, but is warning of "uncertain" and "unpredictable" conditions ahead.

The company oversees a global portfolio of assets worth 78 billion Singapore dollars (about $54.86 billion).

"CapitaLand has remained resilient and delivered a good set of results for the financial year," CapitaLand Chairman Ng Kee Choe, said in a company filing.

"Nonetheless, we face an uncertain and unpredictable operating environment and economic headwinds in Singapore and China, our core markets," he said.

CapitaLand said an improved operating performance helped it post a total profit after tax and minority interests (PATMI) in fiscal year 2016 of $1.19 billion Singapore dollars, which was 11.7 percent higher than the previous year.

The group's revenue for the fiscal year rose by 10.3 percent — driven by development projects in Singapore and China, the commercial portfolio in Singapore and the serviced residence business.

For the fourth quarter of FY 2016, PATMI reached 430.5 million Singapore dollars, a gain of 73.8 percent.

Concerning outlook

Singapore and China make up the lion's share of CapitaLand's asset base, comprising 36 percent and 44 percent, respectively. The two regions also account for more than 80 percent of total revenue, making the business particularly vulnerable to a potential downturn in either market.

"We are constantly looking at how we can rebalance our portfolio," CapitaLand President and CEO Lim Ming Yan, told CNBC's "Squawk Box."

"Our 36 percent now is something we are comfortable with, but having said that, we are constantly looking at opportunities across the different markets that we have a presence in."

The concern is particularly heightened in Singapore, where rising supply and limited new demand is clouding the outlook for the commercial property market.

US-China ties will impact business: CapitaLand CEO

"Office demand has really been down, seeing that the three key demand drivers of oil and gas, finance and shipping have all struggled over the last 18 to 24 months," said Nicholas Holt, Head of Research at Knight Frank, told CNBC.

Holt said office rents had fallen 25 perfect from their 2015 peak, with the sluggish macroeconomic environment dampening occupancy rates in the city state.

CapitaLand said the outlook for office occupancy and rental is expected to be muted, while the impact of property cooling measures will continue to weigh on the local residential market.
Despite the soft outlook, CapitaLand said its result was boosted by higher recurring income from CapitaGreen in Singapore, and other higher performing assets.

"Our optimal asset mix has enabled us to deliver a steady stream of recurring income from our investment properties and management contracts, whilst we continue to realize gains from our trading properties," the company said in the Wednesday filing.

Record Chinese sales

For its other core market of China, CapitaLand said demand had been robust, with the Chinese government staying committed to rebalance its economy by increasing domestic consumption and growth in the non-manufacturing sector, which bodes well for the real estate industry.

CapitaLand said it markets its residential properties to first-time buyers and up-graders, so it does not expect the policy measures to have a significant impact on sales.

"I think the market is underpinned by relatively high economic growth," Lim said.

"In addition to that, I think there's a significant urbanization that's taking place. So we have very much been focusing on the Tier 1 and the Tier 2 cities."

CapitaLand also saw a second consecutive year of record residential sales in China, with 10,738 units sold at a value of 18.1 billion yuan (about $2.6 billion).

"We're seeing new drivers of growth in the economy, such as technology, really drive demand in places like Shenzhen and Guangzhou, Beijing and Shanghai," Holt said.

Chasing growth

While Singapore and China continue to be CapitaLand's core markets, the business is continuing to scale up in markets such as Vietnam.

"We are also looking at Indonesia — these are major markets within this region. We are also looking at markets beyond Asia in Europe as well as in the U.S.," Lim said.

The group expects to complete and commence operations of a record 1 million square meters of retail gross floor area in 2017, comprising five shopping malls and the retail components of the three Raffles City developments in China.

Clarification: This article has been updated since first published following clarification from CapitaLand.

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