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REAL ESTATE, SINGAPORE

Embracing technological disruption in real estate

Interview - October 15, 2018

CapitaLand is one of Asia's largest real estate companies. Headquartered and listed in Singapore, it has a global portfolio comprising integrated developments, shopping malls, lodging, offices, homes, real estate investment trusts and funds. In conversation with The Worldfolio, Ming Yan Lim gives insight into the company’s activities worldwide, and how it is adopting new technologies to offer its customers the best spaces to live, work and play.

 

MING YAN LIM, FORMER PRESIDENT & GROUP CEO, BOARD DIRECTOR OF CAPITALAND GROUP
MING YAN LIM | FORMER PRESIDENT & GROUP CEO, BOARD DIRECTOR OF CAPITALAND GROUP

The real estate sector is often referred to as a thermometer of economic growth. You mentioned the positive prospect for general economic growth in the ASEAN. Do you believe this is going to follow across ASEAN in the real estate market?

I believe growth will take place at a varied but steady pace across the different countries. Vietnam is one where I can see a significant takeoff now, and I would expect to see Vietnam grow strongly for the next 10 to 20 years. Indonesia has made significant improvements in their infrastructure, particularly in Jakarta with new bridges and express rail link to the airport. Initiatives like these can be significant in terms of improving the business environment by helping companies to be more productive when they conduct their activities in the city.

For CapitaLand, we have a presence in nine of the 10 ASEAN countries through our lodging, residential, retail and commercial portfolios. We have a good sense of the kind of intra-ASEAN trade that is happening. For example, our business in the Philippines has seen a growing number of partnership opportunities in the lodging sector. Just recently, our lodging business unit Ascott has signed another collaboration agreement with Cebu Landmasters to add about another 1,600 units in the Philippines. In Indonesia, similarly, our lodging business has been growing. In the past, it catered more to international travelers. Now, within Indonesia, we see tremendous growth in the domestic market with more intra-Indonesia travel as businessmen travel from one city to another to conduct business.

 

Do you have any messages for US companies that are currently looking not only at ASEAN but Asia Pacific – what's going on in the region and why it's relevant for them as well?

What is happening in ASEAN is definitely relevant for many of the global companies as it represents a very big market. ASEAN continues to have a strong manufacturing sector, and countries like Singapore are mature enough to provide value-added services for regional or international-headquarter operations. Going beyond ASEAN, in the rest of Asia, China is definitely a market that cannot be missed due to its sheer size.

As a Singapore-headquartered and -listed company, CapitaLand is very well placed as a growth partner for investors looking at ASEAN as well as China and Northeast Asia. Our global network also gives ASEAN investors many investment options outside the Asian region. Given the capital-intensive nature of real estate, when we undertake many of these investments, we work with capital partners.

Over the years, we have built a good network of capital partners from Asia, Europe, the Middle East and the Americas, helping them tap markets and customer segments that they would not have been able to reach out to on their own. This is how we now operate on a global basis. Capital is, in a way, more powerful as it can move, whereas real estate cannot. As such, CapitaLand’s global network and Asian connections make us a strong partner for future growth.

 

We just talked about the importance of the physical infrastructure and how that's reflecting the growth of the region. There is also the need for soft infrastructure. As a result, Singapore has been accelerating its digital transformation across various sectors through the Committee of the Future Economy (CFE) report, the Industry Transformation Maps (ITMs) and Smart Nation initiative. In your opinion, how important are soft infrastructures for the development of ASEAN and how important is it for Singapore to become that hub for innovation and soft infrastructure in ASEAN?

Eventually, there will be a network of hubs in ASEAN because each jurisdiction, each country works in a different way, with different rules and regulations. In a way, the different markets are big enough to serve as a hub of their own. But all these hubs have to come together to strengthen linkages. The network of hubs is where Singapore can play a very significant role. A lot of ideas are being exchanged here through Singapore-based venture capital (VC) funding. These VCs are going into all the other hubs as well, so the knowledge sharing is not just within Singapore.

My personal view is that Singapore will continue to play a critical role because of the digitalization of companies, processes and the way we ultimately provide a seamless service to the customers. It will eventually be led by Singapore as the city-state has always been the regional headquarters for many companies.

For the next phase of ASEAN’s development, it's very important for its hubs to be able to support digitalization. The critical tipping point will be when connectivity has improved so much that it is possible for individuals across all parts of ASEAN to be connected through their smart devices. This will be a major turning point for all the digitalization efforts. In fact, from 2010 to 2018, a significant shift has already taken place with the advent of mobile applications. 

For example, in China, where CapitaLand has a significant presence, consumers have shifted from transacting via applications on desktop to mobile. The shift is seismic; mobile is now taking on more than 50% of the transactions.

Back in 2013, I visited a number of tech companies operating in China. They were already setting up separate divisions dedicated to developing mobile versions of their applications. These mobile application divisions were very often much bigger than the divisions overseeing the desktop versions. That’s the extent of focus on mobile applications and proof that the shift has already happened. They were already taking on a mobile-first approach in designing applications.

When you think about ASEAN in the last few years, we can see that with the 4G network that has been put in place, mobile adoption is becoming a lot more common. Mobile and smart phone penetration is very high in many of the key cities. This is where technology becomes important and digitalization of companies becomes vital to survival.

 

There is a misconception in the West about China; there isn't so much clarity on how advanced it is with its digital economy. CapitaLand is present in China with 50%1 of your assets under management there. What does digital transformation mean for CapitaLand? How do you believe it's going to impact your operations across your different businesses?

You are right to use the word ‘misconception’. I can see that China has evolved on its own in the last 10 years. We are talking about 1.4 billion people, so whatever they do, they deal with large numbers. As such, whatever technology there is, they have evolved it to deal with complexities that many foreign companies don't have to deal with. The Chinese had to invent their own solutions. In that regard, they have made significant progress. China is probably one of the countries in the world with the highest number of patents being launched every year.

For us, we focus on building relationships and engaging with our end customers by leveraging digital technology. This is a big shift from the passive landlord approach that real estate companies used to do. Real estate companies must not forget that their tenants have employees and their employees are individuals that use the buildings. They must also remember that tenants, particularly retail tenants, have their shoppers. These employees and shoppers are the true users of our buildings. This focus on customers is why we see technology as an opportunity, rather than a threat. Technology now allows us to engage directly with many of the customers.

Digitalization to CapitaLand means to have the ability to engage with our customers, to know how their preferences are shifting and to provide them with a better experience when they are in our buildings. We are also creating a digital network of offerings so that even when they go beyond our buildings, we can continue to provide them convenience and services.

An example would be a customer looking to buy something in the middle of the night. Obviously, the shopping malls, the retailers, the shops, are not open, but they could then make a purchase online and pick it up the next morning. This is offering a service beyond the physical space, into the virtual space. How do we seamlessly integrate the virtual and the real, offline world and the physical world? It is a very interesting challenge that many companies have to deal with including CapitaLand.

I believe that CapitaLand has the necessary foundation and the right conditions for many of these things to take place. First, we have an extensive network of properties. In Singapore, we have over 40 properties in different locations. There's a possibility for us to better serve our customers across the country. An example would be our CapitaStar program, which covers all our shopping malls now. We are working on extending it to all our office buildings and hopefully, in the very near future, extending to all the other property types in CapitaLand’s portfolio.

The network effect is also evident in China, where we have significant scale within each of the cities. With scale comes the ability to create a network of touchpoints across locations and asset classes. In this way, the services we provide become more accessible to our customers, and they will find it convenient and easy to engage them. For example, if customers stay and work at our apartments or offices, they can easily make use of the services and amenities provided by the retailers at the shopping malls, whether it is within the same integrated development, or in a nearby property.

To allow us to do all these things, we need to get our employees to first understand the need and importance of digitalization, gain the knowledge and expertise and subsequently, apply it to their day-to-day work. Beyond that, we also need to look at backend operations such as how we manage our buildings in order to provide the front-end services. We have implemented a number of pilot projects successfully and are now rolling them out across our portfolio. Examples would include adding sensors into our equipment at our buildings, to allow tracking and optimization of equipment performance.

This would also allow us to run our properties more efficiently, with the workforce looking after a much bigger portfolio. Particularly, in major cities and countries like Singapore where there is a constraint in how big the workforce or how fast the workforce can grow.

Lastly, we look at how we can use digitalization, such as virtual design, to enhance our project development and construction process. This would allow us to iron out all these issues before we start the actual construction. We use building information modeling to plan and optimize the design. This will minimize changes and variations during construction.

With technology, there will be less uncertainty in the areas of construction, building management and in how we engage our customers. But, ultimately, in order for these initiatives to work, we need to equip CapitaLand staff with the necessary skills and knowledge.

 

CapitaLand has embraced digital disruption and has also restructured into two-main engines for growth. One is geared towards investment/development and the other one towards operations under the platform of ‘live, work and play’. Could you tell us about the competitive advantage you wish to gain through this restructuring?

In our business there are two parts. One part focuses on investing in real estate and the other part focuses on managing real estate in a way that remains relevant to the customers.

When we look at investments, we base it on local understanding and knowledge of the market across the different asset classes within the same city or country.

We observe that increasingly, projects are no longer single-use; they are integrated with retail, office, lodging and residential components. In this new environment, I would rather have one team of people looking after all the different asset classes in each city. Having one team of people dedicated to understanding and establishing networks in each market allows us to better assess investment opportunities.

For the part of the business that focuses on managing real estate, we realize that to run a shopping mall, an office property, or a lodging network requires scale and specialized skills. This is why we want to harness the network effect that we have across different cities and countries. We have created an operating platform that is best-in-class in terms of operations and customer engagement. This positioning has enabled us to be at the forefront of the latest real estate trends that cater to our customers’ changing preferences.

For example, for offices, companies were quite happy to take up space for 10 to 20 years in the past. But increasingly, companies want to have flexibility, mobility and a conducive environment that can help them keep their talent. That’s why we have taken a core plus flex approach within our office buildings, where we have space allocated to both types of tenants.

For ‘flex’, we are putting in the right amenities to create co-working spaces for companies that have people coming in from different parts of town to collaborate in a central location. That's how we look at office space now. We are also looking into creating the ‘office of the future’ through seamless experiences with facial recognition software, digitalizing transactions and processes at our buildings so that customers don’t always have to call somebody or fill up forms to get things done.

Shopping malls are no longer a place just for you to sell and buy things. It's a place where people want to experience something new, different and convenient. It's about providing services. Cinemas are still doing well because they continue to invest in experiences – 4D, 5D, even 8D viewing experiences. In one of our malls, there's a ski center where you can learn how to ski and snowboard. We also have horseback riding and flight simulators. We have already shifted the tenant mix of many of our malls to have a significant component of food and beverage (F&B), the next phase would be to bring in more of these experiential elements for our shoppers.

 

CapitaLand manages over 93 billion1 SGD worth of assets. You're planning to go over 100 billion SGD by 2020. Even though you've been concentrated on China and Singapore, you have investments in Vietnam and more recently, you've invested in offices in Germany and you have serviced apartments in the U.S. and in the E.U. Where do you see CapitaLand moving forward?

CapitaLand can develop, evolve and grow in two areas. One area obviously is Asia. We continue to invest in key growth markets and our core markets – China, Singapore, Vietnam and Indonesia. We will continue to invest and look for the right opportunities.

Having said that, we also sense that there are big opportunities in the developed markets. When we look at developed markets, U.S. is obviously a very deep and liquid market; Europe as well. Closer to home, Japan and Australia are also attractive markets. These are jurisdictions that we have invested in through our lodging business, but they have also presented opportunities for other asset classes that are compelling.

Looking ahead, we hope to deploy about 50% of our capital in developed markets and are looking at key cities such as Singapore, London, Paris, Frankfurt, Tokyo and Osaka. In the U.S., we are looking at key gateway cities like New York, Washington DC, San Francisco and Los Angeles. We are also looking at select cities in Australia. Investments in developed markets give us stable, recurring income.

On the other hand, we also see a lot of opportunities and much higher growth in many of the developing countries like China, Vietnam and Indonesia. To strike a balance for our portfolio, we are looking to achieve a 50:50 capital allocation. In terms of the kind of asset that we invest in, there are two types – investment properties, which includes shopping malls, offices and lodging, and the other we call trading properties including development projects such as residential developments that we build to sell. We look to maintain an optimal 80:20 asset mix between investment and trading properties.

                                     

1 As at 30 June 2018.

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