What is the impetus for growing global? For property and construction companies, going global is a significantly tougher decision to make as, unlike manufacturers, it is not just a matter of running the production line in their home-based factories and then exporting the finished products. For real estate players, going global entails a long-term physical presence over the timeline of the project. More variables (read: risks) need to be factored into decisions of expanding beyond home markets.
Nevertheless, many real estate companies have done so successfully, and senior executives from some of these firms shared their thoughts in a panel discussion held at the commencement for graduates of the SMU-BCA Advanced Management Programme.
The panel - comprising Kevin Wong, Group CEO of Keppel Land; Song Seng Wun, CEO and Regional Economist, CIMB-GK Research; Chng Chee Beow, Property Director, WingTai Asia; and Anthony Chia, Deputy General Manager GM, Design and Projects, City Development Limited (CDL) - was chaired by Annie Koh, Dean, Executive and Professional Education, Singapore Management University.
Look before you leap
The last few years have been buoyant for the property and construction industry. According to industry regulator Building and Construction Authority (BCA), this year, between $21 billion to $27 billion worth of contracts will be awarded - a continuation from the $21 billion parcelled out last year. Additionally, 2011 and 2012 projections are currently between $18 billion to $25 billion per annum.
Clearly, there is quite a fair bit of business to do within Singapore. Nevertheless, going global is something that shows up on the agendas of many property and construction companies. Their motivation, simply put, is the promise of profits - a sentiment shared amongst the panellists. However, going global is not just about going abroad and pumping back money, CDL's Chia cautioned. Capital investments need to be matched with a good understanding of the market. And there is more: Companies that want to go overseas should examine their objectives and the kind of resources they have, be it human resources or financial resources, WingTai Asia's Chng advised.
There are also many other slight but important considerations, like finding someone whom you can trust to oversee and execute the projects; the extent of your market research; how to communicate your business and brand overseas; and how to differentiate your projects from others. Quite often, local partners will be involved - due to regulations or otherwise - but nevertheless, it is critical that culture norms be learnt and understood. The business objectives may look the same on the surface, said Chng. But when it comes to crises, [the business climate] will be different.
To be sure, going overseas - for Singapore companies limited by the small size of its domestic market - is nothing new. Singapore companies can already be found all over the world. Members of the audience were more interested to hear from the experts where they think the next big market will likely be.
Anywhere where there is an opportunity, came the prompt response from Chng. The global business environment is dynamic and so, old methods have to be challenged, Wong chimed in. Take the case of Keppel: In the past, the company would rely on the government to establish trade ties. The company would also wait for the government to take the lead on certain markets, or on projects first, before deploying its own resources. These days, Keppel Land - one of the many companies in which the Singapore government owns a stake, whether direct or indirect - no longer waits for big brother to open its doors.
We will scan all the countries, cities, and see if there is a place where there are opportunities, a place where we can fit in or hold a competitive advantage, said Wong. After analysing these, we will put two chaps there, let them sleep there and find a project. In the last financial year, Keppel Land earned a profit after tax and minority interest of $78.7 million, or 31.5% of its total, from overseas. The company's aim is to increase this to 50%, he shared.
The company is, so far, most active in China, with numerous residential projects in not just 'tier-one' cities like Beijing and Shanghai but also, 'second-tier' cities like Kunming, Changzhou, Wuxi and Jiangyin. Besides China, Keppel Land is making its presence felt in markets like India, Saudi Arabia and Vietnam. Meanwhile, Indonesia and Russia are being looked at carefully, Wong hinted.
Accessibility is a major factor to consider too. For Wong, Russia is an example where there are certainly fruits to be picked, but distance and a lack of transport links are shortcomings that need to be looked at. His advice for companies is to consider helping to develop the places so that their investments will appreciate in the long run.
Human resources should also be looked at carefully before venturing out. Also important are social responsibilities in those markets which companies operate, Chng added. Culture and the ease of communication are important factors for WingTai Asia, he noted. If you go to somewhere where you don't understand the language... It's going to be difficult - unless you want to go in and make a fast buck.
CDL, on the other hand, shares Keppel Land's view that the regional markets, like China, represent lots of potential. When we go to the region, we also bring - apart from the investment - a certain expertise, which is what the region is looking for, said Chia. Venturing overseas is definitely not easy. To become a successful global entity, it is important to know the target market well, he stressed. There are [seldom] shortcuts to that. Ultimately, success boils down to understanding the culture and the market.
Why do skyrockets and property prices have in common?
Even as companies are casting their nets in the region and across the globe, many continue to invest in their home ground because Singapore is, and looks set to remain, a valuable market for property and construction companies. CIMB-GK's Song Seng Wun spelt out this underlying reason: With 700 square kilometres of land, and five million people, (prices) can only go one way - up!
Opportunities are opening up in Singapore - when we see residential properties popping up, we see businesses setting up shop too. For instance, we are now seeing stronger pick-up in office rental so, all in all, this will support the residential market as well, said Song.
Low interest rates and the general perception that property is an asset which people can leverage for profit will continue to push prices up even further. The boom in the demand from both local and foreign buyers also fuels prices. Should central banks cut down on monetary stimulus by increasing interest rates, growth will still be strong. He explained: Even if rates go up, it's going to be an environment where there is growth opportunity and momentum. So any tightening at this point will be accompanied by strong growth.
Sharing the observation that the year-on-year increase has hit 30%, he said: I notice that when we get to a point where property prices year-on-year start to reach the region of 30-40%, it tends to signal the peak of the market over previous cycles, so we are nearly there in terms of year-on-year numbers, said Song.
According to the private residential property index compiled by Singapore's Urban Redevelopment Authority (URA), the index has reached a recent high of 175 points within the first quarter of 2010, compared to 165.7 points in the preceding quarter. This has led to suggestions that the property market might undergo a correction. However, according to Song, this is not likely to be the case.
Adding to that is the opening of new MRT stations across the island-state which will also likely jack up property prices. While this spells good news for many of the existing property owners, it is not as warmly greeted by developers (or for that matter, the subsequent home owners to be) as they have to fork out more to bid for land near the stations. The [expanding] transportation network makes things much closer and that brings up property prices, Chng noted.
Despite the challenges, and as keen as the developers on the panel are in their regional expansion plans, Singapore remains an important market. Success in Singapore serves as a very good entry for us to go overseas, said Chng. So we have to do a very good job locally. Wong added: None of us will neglect Singapore... partly because the value [of properties] in Singapore is very high. So if you have one office building here as opposed to one office building elsewhere, it is still worth more here.