Companies in the real estate industry should continue watching their cashflow, which includes looking for new recurring income and keeping options open for alternative funding, according to industry players.
At the Real Estate Investment World Asia 2010 industry conference, industry players said they believe that the global financial crisis is not yet over and it may take a year before a certain economic recovery is achieved.
Property developers were among those badly affected by the global financial crisis in 2008, which resulted in the decline of loan-to-loan covenants and created stricter borrowing conditions.
Observers said this showed the need to guarantee adequate liquidity for the operations of companies. Though the worst of the crisis seemed to be over, they cautioned that the real estate sector may not be out of the woods.
Peter Van Rossum, CFO of 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,” he added.
One way to generate recurring income in order to mitigate cashflow issues is to diversify into areas like hospitality, said observers. Another alternative is to consider non-traditional forms of financing.
Thio Gim Hock, CEO and Group MD of 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," he added.
Wen Khai Meng, chief investment officer of 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."
Observers are now expecting better prospects for the Asian property sector, which will be partly boosted by capital inflows, in the middle of an expected currency appreciation in the area.
Standard Chartered believes that retail and office space will be supported by strong projections for retail sales and GDP. It expects retail sales in Asia to keep a high single digit growth in 2010 and 2011.