Arthur Lang on Asia’s real estate market | CapitaLand | Video

World Finance interviews Arthur Lang, Group CFO of CapitaLand, on Asia's burgeoning real estate market and potential future investments

January 21, 2014

CapitaLand has grown to become one of Asia’s largest developers. Arthur Lang, CapitiLand Group CFO, talks about CapitaLand’s focus on China and Singapore: China’s five ‘city-clusters’ that are driving the real estate market, and how Singapore’s low interest rates are affecting property investments.

World Finance: Mr. Lang, which countries are you targeting for growth and why?

Arthur Lang: CapitaLand today is in almost 20 countries all over the world, even in Europe and in the UK, where our serviced apartments are, but really the focus is very much on Singapore and China. I think for Singapore and China alone today, it’s about 75-80 percent of total assets for the group. If you look at all the projects and activities we’re involved in in these two countries, I think in the next five years I wouldn’t be surprised if it’s about 85 percent of our total assets and total business. Specifically if you look at China, it’s perhaps the best place to do business in Asia, with 1.3-1.4bn people; it’s a huge market. I think more importantly as well, urbanisation rates in China are still relatively low compared to the developed world, it’s still in the 50 percent area, the developed countries are in the 80s or even in the 90s, in terms of the population that’s urbanised.

World Finance: Well staying on the subject of China, and we obviously hear an awful lot about the potential in the country, but there is a lot of talk about a possible housing bubble. How much of a problem do you see this being?

The urbanisation rate for China is still relatively low compared to other large countries, so there is still a lot of room for growth

Arthur Lang: With the new government I think we are still fundamentally confident with the residential sector, the property market in China, for the reason I mentioned earlier; the urbanisation rate for China is still relatively low compared to other large countries, so there is still a lot of room for growth. I think we are also very encouraged by the recent measures from the Chinese government to cool the residential sector down, and not create bubbles. Because I think for real estate companies, what we really like is sustainable growth, where we can make proper investments, we can make judgments in terms of which cities to invest in. If there are a lot of bubbles I think things get a bit too volatile, and it’s quite disruptive to business, because real estate is a very long-term business, and actually we wanted to grow sustainably.

World Finance: Would you say the housing bubble is perhaps less of a concern in places like China because there’s so much demand for housing there?

Arthur Lang: It really depends on which city you are looking at. China has something like more than 600 cities with populations of at least a million, so we can’t be in every city, and I think that each city has its own dynamic, has its own regulatory requirements, has its own market demand dynamics. So we need to look at each city. China as a whole, we are very bullish on its overall economic performance over the next 10-20 years, but I think also at the city level we have to look at and see where we want to place our bets.

World Finance: So moving on to Singapore now, where CapitaLand is based, the property market there has been flourishing due to low interest rates, so how do you see the new total debt servicing ratio impacting the market?

Arthur Lang: There have been a series of property cooling measures instituted by the government for the last three years, the last one being the total debt service ratio, TDSR. Cumulatively, that has actually moderated the residential market in Singapore. Now in terms of what we think of the prospects, the fundamentals are still there for Singapore. Population growth is still increasing, and I think the government is still wanting to make sure Singapore is a great place to live as well as a place to do business.

World Finance: CapitaLand has achieved great success over the past few years, in part because you haven’t relied on one source of funding. So why do you think it’s important to diversify sources of capital?

I think the government is still wanting to make sure Singapore is a great place to live as well as a place to do business

Arthur Lang: The realistic developments are a very long gestation period, meaning that at the point of buying the land and when you actually spend capital, in putting capital to buy the land and to build, you don’t see that capital coming back to you until a few years later. In certain very large projects it could take seven to eight years before you actually see the capital return.

Two, I think real estate fundamentally or inherently is a very cyclical business. There are peaks, there are troughs, we talked about bubbles earlier. So I think one needs to understand the cyclicality of the industry.

Three, I would say that right now, especially in Asia, where we are focused on our cities in Asia, the ticket size of real estate has become a very intensive business. For example, in Singapore I always tell my colleagues that any building and any office building in the CBD in Singapore costs you at least a billion dollars. So large amounts of capital are actually needed to make sizeable investments in Asia.

World Finance: Well finally, I think the question most people want answering is, where’s the next big thing, where will you next be targeting for investment?

Arthur Lang: I think we’ve got our hands full in Singapore and China. It’s definitely these two countries, as I mentioned earlier, we’re fundamentally very confident about our prospects in these two countries, and we still want to continue to grow there.

World Finance: Will you maybe be going to more third tier, even fourth tier cities, rather than just the major cities like Shanghai, Chongqing?

Arthur Lang: I think at this point if you look at, probably about 90 percent of our China business is concentrated in about 10-11 cities in China. I think that what we want is to really go deep, deepen our presence in these cities. So what we have done is, we’ve actually created five city-clusters at CapitaLand within China for China business. And each city-cluster is anchored by one of the major cities. So in the northern part of China, we’re Beijing, in the eastern part we’re Shanghai, in the southern we’re Guangzhou, Central we’re Wuhan, and then in the southwestern with Chongzhou, Chongqing. So I would say at this point we’re still very much focused on these five city-clusters, but always keep your options open, so maybe next year there might be a sixth city cluster, but at this point it’s five.

World Finance: Mr. Lang, thank you.

Arthur Lang: Thank you Jenny, thank you very much.