- Rising interest rates may drain liquidity from property assets
- Opportunities for acquisitions to pick up later this year
City Developments Ltd., Singapore’s second-largest developer, may seek to buy offices this year as rising interest rates makes such assets cheaper worldwide.
“We are coming into a very good time for acquisitions,” Grant Kelley, chief executive officer of City Developments, said in an interview in Singapore. “The long-term trend line for assets for the next 12 to 24 months could be deflationary because I believe as interest rates go up fixed income will become more attractive and maybe liquidity will drain from real estate assets a little bit.”
City Developments, run by billionaire Kwek Leng Beng, has been diversifying outside Singapore after government curbs crimped demand at home. The firm has invested more in residential and hotel properties over the last couple of years, although that may change if commercial assets come up for sale at discounted prices this year or in early 2017, Kelley said.
Market volatility has increased the appeal of property as an investment, even as an uncertain global economic outlook crimps the price buyers are willing to shell out. Global real estate investors are expected to plow more than $1 trillion into the property market this year, a 6 percent increase from 2015, according to a CBRE Global Investor Intentions Survey released in March.
City Developments will focus on five markets as part of its diversification, including China, Australia, Japan, the U.S. and the U.K., Kelley said. The company has said it will meet its target of investing S$5 billion in overseas markets by 2018.
The developer reported a 14 percent decline in profit to S$105.3 million for the quarter ended March 31, while revenue slid 11 percent to S$723.3 million. It is expanding its fund-management platform and has completed two deals valued at S$2.6 billion since December 2014, the company said. It is on target to grow fund assets under management to S$5 billion by 2018, Kelley said, reiterating the company’s stated target.
City Development shares rose 1.5 percent to S$8.26 at 10:44 a.m. in Singapore trading, bringing the year’s gains to 8.4 percent. The benchmark Straits Times Index has declined 3.6 percent this year.
Kelley said the developer is “aggressively” working on two joint-venture deals, similar to ones it undertook in the last couple of years, where it packaged some properties and sold stakes to help it free up cash, but will only seal them if the pricing is right. It partnered with Blackstone Group LP and CIMB Bank Bhd. in 2014 for S$1.5 billion of “profit participation securities” that invested in the cash flows of its luxury properties in Sentosa Cove. Last year, it bundled three office properties in the city-state and did a similar deal with Alpha Investment Partners valued at S$1.1 billion.
“We want to do more, but the asset market is coming down,” Kelley said.
Even though income-yielding assets such as offices grew expensive after being sought by sovereign wealth funds as bond yields tumbled, they are expected to become cheaper when rates rise and funds divert money back to government debt for better risk-free returns, he said.
“This is a market to be an asset acquirer not an asset disposer,” Kelley said.