SC Global is a luxury property developer in Singapore. In this interview, CEO Simon Cheong gives his insight into the real estate sector in the city state, and tells us more about his company and its expansion into Japan.
Up to 2020 the region will be growing at a very fast rate on the back of increased consumer spending, booming demographics and large investments by different governments. What is your opinion on the outlook of the region all the way to 2020?
First of all, I would like to set a backdrop on where Singapore and ASEAN has been and how it has evolved. Many people don't realize how the whole of ASEAN evolved in this modern age. Today everybody has a cellular phone, good transportation, and is well-connected. You look back at the last 100 years; ASEAN was never as peaceful as it is today. After the Vietnam War, we had no wars, unlike other regions.
Secondly, the ASEAN region is one of the most educated in the world. Indonesia and Philippines for example have one of the highest literacy rates in the world with a young population. ASEAN, with its high literacy rate and rising young population, means it is big market. It is probably like China 30 years ago and look at China today.
Thirdly, I think many people forget that in ASEAN, the transition of leaders in the last 10-20 years has been amazingly peaceful. Even if you look at Thailand, the demonstration is very well managed. There’s very little violence. All the ASEAN leaders work closely together.
When we first became independent, our forefathers showed a lot of comradeship which is a trait that is well engraved in our culture. Fast-forward to today and Singapore obviously benefited from the British that laid down a great foundation.
Taking into considering all these growth factors you talked about, how do you see the evolution of the real estate sector?
Sentiment and political stability play a major role in affecting real estate prices as people assess the risk and return. In the context of ASEAN, the real estate prices have all gone up because people see the political risk is lower. There may be some places where it’s a bit more difficult to do business, but overall ASEAN real estate prices have gone up compared to other regions in the world. This is another reason when you talk about ASEAN, all the prosperity that we had is due to real estate prices, because there is real demand rather than speculative demand.
We've seen a lot of Japanese investment banks and retail and institutional investors buying properties in the Philippines, for example, which has been growing at 7% a year. How would you describe the investment profile of ASEAN as an investment destination in real estate compared to other growth sectors, other continents?
One clear benefit that we have in ASEAN is the English language. You can speak English in any business circle around the region. Anybody who is 50-60 years old and below will speak English. From an investor's standpoint that helps a lot. In that sense, ASEAN is a very investor friendly environment.
Singapore used to be known for being an entry port which all the shipping lanes went through. It was a port for trading rice etc. Today we play a role as a financial center for capital investment. We have creditability, a stable government, a rule of law and a big arbitration center for disputes. We are becoming the London of Asia, a nation where you can have all your deals done here under Singaporean law and you can arbitrate here rather than arbitrate in countries where the laws are very different. We tie ourselves very closely to London and share a similar system.
How do you see Singapore’s property market, whether it's in residential or commercial or any other market segment?
In the last five years, we went through the so called “cooling measures”. The first measure introduced was an increase in stamp duty. Then people started buying more than one property and a second rate of duty was introduced. Then we had a stamp duty to reduce speculative buyers. Then there were measures imposed on developers to prevent them holding onto a property; which means as a developer when you buy land, you need to build and sell within five years. After the 7th or 8th measure (in the succession of 3 years) they came up with the term TDSR, Total Debt Service Ratio. It’s always easier with hindsight, but in my view, that should have perhaps been the first measure.
These measures were effective in cooling down the market. On the one hand, the stamp duties were there to slow down the demand. Whilst the other measures meant developers unloaded within five years. When a demand is cut down and the supply is pushed up, the property prices come down.
Historically right or wrong, but with the benefit of hindsight, what I like about all these measures for the whole market and going forward in the next 5-10-20 years is the last measure, which is a Total Debt Service Ratio. The Total Debt Service Ratio basically curtailed all the buyers from borrowing. Even Warren Buffett cannot borrow money in Singapore to buy housing. What’s happening now is that after the 3rd or 4th property you have to use your own cash to buy the property. As a result, the gearing of individuals in Singapore in the last 2-3 years has dropped tremendously. When there's a lot of equity in your investment, it’s sustainable. If you take the example of the United States where you were able to borrow at 110% in real estate, what happened? The whole market collapsed.
Being Asian particularly, it's in our blood, we like to think of dynasties and our descendants, without exception the Indian, Chinese, Malay – we all think the same: “I'll buy for my kids”. In the past it was with borrowed money but now they will still buy with cash to pass it down. Asians are quite averse to other common investments. If you look at 2-3 years ago, there was a lot of investment in stocks and shares, then there was a collapse and their value was wiped out. Here stems the mistrust about shares and equity. Within the Singapore context, either you put your money in what we call central provident fund and the government manages it – I think they give you 3% return. Otherwise, you take it out and just buy property and wait for the capital appreciation. In general people understand property and even if the price goes down the property is still there. That’s why with Asians the affinity with property is very strong.
Moving onto SC Global, you say “we don't have many projects, but we have great projects” which explains the uniqueness of SC Global quite well. Could you put that sentence in perspective and explain what you mean by that for SC Global?
When I embarked on this business 14 years ago, I didn’t have a deep pocket. In my life, often times I was driven by the circumstances and timing which I took advantage of. When I started, I didn't have a rich father to fund me, so I came out as a professional banker and every penny counted. So how do you do real estate business in the land of the giants, where they have very deep pockets to do business? I decided to find a niche in the market. It coincided at that time when our Prime Minister declared that Singapore will be a cosmopolitan city and financial center, which will attract a lot of high net worth people.
At that time, Singapore’s residential property market was not up to par with the likes of New York, London or Tokyo. So I saw a niche to focus on the high-end residential market. Up to today, we are the only developers who focus purely on the high-end market. You look at all the other players – they cover many sectors of the market from warehouses to mass market etc. We are not the biggest, don't get me wrong, but we are the purest. Of course, it was a challenge at times when we had to be patient, but now the momentum is coming back. Over the years, I have learnt that it’s important to stick to your vision, stick to your passion and stick to your beliefs.
There is a law in Singapore that restricts foreigners from buying landed property. They are not able to buy a ‘Good Class Bungalow’ (GCBs), which is the pinnacle of high-end and luxury. There are only about 2,500 GCB’s in Singapore. Back then after hearing the Prime Minister’s speech, I decided that I will provide the infrastructure for the well-heeled, high-net worth people who come to Singapore and want to upkeep the same standards of lifestyle. Even though we are not a big developer, we've done very well. In total we have a million square feet of high-end residential apartments. A million square feet for a big developer may not even be one project, but the whole capital market value is really high. The bonus is real estate developer is something which I enjoy doing very much, I’m passionate about the developments we create, not only in terms of architecture and design, but also the lifestyles we create along the way. We’re proud to have set many benchmarks over the years, not least that the most expensive apartment in the whole of Singapore was sold by us.
Talking about your customers, not any one individual but because there's a lot of high net worth individuals here in Singapore and they are limited to a very small segment of the actual population because it’s a luxury product. I am guessing they come a little bit from everywhere. How do you cater to the needs of such a picky but at the same time diversified set of customers?
It is not easy. The word bespoke is always used and perhaps abused. To be honest, building an apartment block, when you start you have to finish, you cannot stop mid-way to accommodate one tenant. One of our strengths is our ability to anticipate who the buyer is for the end development – which country they will come from, their lifestyle and their culture. I need to have a product which basically is flexible enough and yet exclusive enough to appeal to a range of well-heeled individuals, irrespective of which culture or country they come from.
I have a great team of many good people that help put it all together. Luckily the need for good well designed space transcends every culture, religion and race. Once you get the space planning right, you can do a lot of things. I always tell my team, “before you fix the color palette and design details, tell me about the space, the light and the effects of the natural environment.”
Can you tell us more about your expansion in the region and how do you plan to conserve the SC Global brand that you have acquired in Singapore to spread it to around the region?
The next 5 to 10 years is a time for us to scale our brand. We've spent the last 10 years building our brand and I believe everybody knows what we stand for now. I thought that Japan is an interesting place for us to expand geographically, because it's easy to do business there. Although I don’t speak the language, Japan is an international financial center, so the rule of law is very clear. Tourism is on the rise with more and more Asians visiting Japan for holidays. You have snow, sea and cities like Tokyo which are very safe. I mentioned earlier the importance of the political stability with real estate investment.
I see an increasing demand and wealth factor in the whole of ASEAN – there is a large younger population of parents who are looking for new life experiences for their kids and want to bring their kids to experience new places and new activities like skiing. All of these elements add up quite well and contribute to why we picked Japan and are continuing to look for further investment opportunities in the country.
If we were to have this interview again in 2028, where would you SC Global to be – both in Singapore and internationally?
As SC Global we have definitely established the “SC” part but we are still growing the “Global” part. We are trying to scale that, so the name follows. We are already in Bali, Indonesia and we are in Australia, China and Japan. It’s important to note that we don't scale for the sake of scaling. Whatever we do is considered, we need to have a vision of what we want to achieve, and we are not in a hurry if the time is not right. That's mostly why I took the company private, so we have time to ponder and do the right thing, rather than being forced on the popular choice. We can say we took one step backward to do the right thing, repositioning the company set us back two years, but at that time the market was down anyway. We decided to restructure our company, recapitalize it, and take a 10 year runway. If one day we go public again, we would have a very strong business model to continue growing.