Top commercial broker on how skyrocketing inflation has impacted the sector
Soaring inflation has had an impact on the commercial mortgage space, affecting customers’ views on credit and lending.
Larry Zhou, managing partner of LINK Capital, recently chatted with MPA TV about how inflation is impacting the market.
“The issue of inflation – strong inflation, I should say – cuts across so many areas of what we encounter and what we see in our business,” Zhou said. “In my opinion, the world has changed over the last couple of years. Global inflation through printing of money, shortage of resources and through monetary fiscal policy are now a real concern for all investors.”
Zhou said there was “definitely a structural change” in the way investors and businesses viewed inflation, specifically its relationship with debt and assets.
“Look, inflation is nothing new,” he said. “We have always understood inflation. It’s something that just ticks along in the background, but people just accept it and it doesn’t really change how people make decisions. But now people are much more aware that strong inflation is eroding the real value of their cash holdings.”
With cash’s strength waning, Zhou said many investors now preferred to hold alternative assets.
“Investors and businesses now are showing much stronger preference to hold asset classes like equities and property – and as a result, much less cash,” he said. “And when a property transaction takes place, credit leverage is often the key consideration.”
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Zhou said that even with the current inflation picture, the advice he would give to investors was “probably no different to any other environment you’re in.”
“Structure debts correctly and sustainably build a safety marking for rate rises,” he said. “Investors in businesses must understand that interest rate is not a constant in any economic equation, and asset prices also fluctuate. I feel too many people try to predict the direction of the market in the short term and perhaps don’t focus enough on the quality of the underlying assets they’re acquiring and the long-term play. Ultimately, building a portfolio of solid assets through the right vehicles and making good investment decisions long term will beat any short-term gain from speculating in the market.”
