Steve Melhuish.

Property Leaders Series: Steve Melhuish, Vice Chairman and Co-Founder of PropertyGuru Group

With 25 years’ experience building businesses in Asia and Europe, the amiable Steve Melhuish is the co-founder of PropertyGuru, leading the business into Asia’s leading property portal group used by over 25 million property buyers in five countries.

Melhuish takes time out of his busy schedule — he is also a Venture Partner at Wavemaker, the leading B2B early-stage tech firm in South-East Asia — to chat exclusively with CHGToday on the property market outlook in the region. This is the first in a series.

CHGToday: How does the general property market look like in South-East Asia, specifically Singapore?

The South-East Asian property market is attractive from a long-term perspective given three macro drivers:

  • Population — the region has a large group of about 600 million people, and it’s growing fast: seven million people are being born per annum, all of whom will need homes in the future.
  • Urbanisation — currently over 250 million people in South-East Asia live in cities. This is increasing, with over five million new people moving into major cities every year. Bangkok, Kuala Lumpur, Singapore, Jakarta, Ho Chi Minh City, Manilla  and etc. have all doubled in size over the last 25 to 30 years.
  • Household income – GDP per capita in South-East Asia is increasing on average at approximately 5% per annum. This means a growing middle class that is able to afford to buy their first — and increasingly second — properties.
  • South-East Asia investments — Growing regional technology firms in South-East Asia drives office demand in Bangkok, Jakarta, Singapore and Manilla, as well as warehouse demand in Vietnam, Indonesia, Philippines and Thailand. Manufacturing is moving from China to South-East Asia — especially Vietnam — and tourism as well, especially from China to Vietnam, Indonesia and Singapore; China has become the largest trading partner for South-East Asia in the last decade, with 14% of exports in 2017.

This leads to a large US$250 billion per annum real estate market, which is growing at around 4% per annum today; demand will continue over the coming 20-30 years. In the short term, some South-East Asian real estate markets face cyclical headwinds, e.g. pockets of oversupply, flat property sales/rental prices or a decline in many cities. Long-term prospects for South-East Asia are positive driven by ongoing housing demand — especially in South-East Asia’s top 20 cities — over the next 20-30 years, for all the reasons previously outlined.

Specifically in Singapore, the government has implemented tight controls over the last six years to try to create a stable property market versus the previous “boom, bust rollercoaster” that existed here, and to a certain extent still exists in some other countries. This has meant nine co-ordinated cooling measures, including buyers’ and sellers’ stamp duty increases (targeting speculators, investors and foreigners), borrowing restrictions (to manage household debt), increased developer costs and declining population growth rate to under 1% per annum (due to reduced permanent resident approvals and tighter foreign worker employment pass rules). This means less demand and more supply — existing unsold residential supply plus an additional 50 new projects or so launching in 2019/2020.

So what will this mean? We can broadly expect ongoing price declines (for HDB and private housing), increasing unsold inventory, increasing vacancies and reduced rental prices. Investors/owners are faced with flat or negative capital appreciation and yields in the short term, probably fir the next two to three years. However, long-term prospects (5+ years) remain positive for Singapore: it has a stable government which plans for the long term and in a co-ordinated manner; continued large scale infrastructure investment; a safe and secure liveable city; geographical location with strong transport links to rest of Asia/world; companies continuing to locate their regional or global headquarters to Singapore; and etc.

We can’t talk about the South-East Asian property market without mentioning technology. The ongoing digital boom (over 500 million people in the region will be online by 2020 — more than twice the US) will mean that we’ll increasingly see technology playing a role in the real estate markets. PropertyGuru has been leading this proptech wave across Asia for the last 11 years, investing in innovative new technology and services to help 25 million consumers every month in South-East Asia make confident property decisions. 

What economic downturns could upset your forecast?

In the short term (the next two to three years), there are macro uncertainties which could put further pressure on South-East Asian economies — and property markets. In particular, a cooling China economy, the ongoing China/US trade dispute, potential North Korea future conflict, rise of populism thus polarising countries, elections in Singapore/Indonesia/India/Philippines, recently elected new governments in Thailand and Malaysia, and etc.

Broadly in the long term, South-East Asian real estate prospects remain positive for all the reasons outlined above.

What is the direction of the respective countries in South-East Asia?

This is a big question, covering lots of countries, cities and sectors. However, broadly, the short-term outlook over the next two years or so for South-East Asian major real estate markets are:

  • Singapore — Down. Ongoing oversupply and cooling measures have cooled the market, resulting in ongoing Housing Development Board (HDB) price declines since 2014 and private properties declining again after 2018 price increases. Overall, expect a muted residential market until at least the end of 2020. On the flip side, prime office rents and hospitality investments sales are expected to do well in the next 12 months.
  • Malaysia — Down. Ongoing oversupply, cooling measures and increased interest rates have impacted the medium/high end of the residential market (prime residential Kuala Lumpur property looks affordable compared to Bangkok or Manilla equivalents now). However, stimulus measures for homes below MYR300,000 are expected to help the affordable end of the residential market to grow. Kuala Lumpur office vacancies are up, and rents are down. While increased oil prices will lift the country’s GDP over the coming year, don’t expect much positive news for Malaysian real estate until the end of 2020 (a buyers/tenants market).
  • Indonesia — Flat. After a period of reasonable growth, ongoing elections followed by Ramadan will delay property decisions. In addition, office vacancy rates in Jakarta have crept up to ~30%, leading to reduced rents. Expect a quiet market until 2020, when activity should increase again (depending on election results).
  • Vietnam — Up. Its top five cities continue to boom, with economy doing well and benefiting from China/US trade disputes plus Chinese, Korean, Japanese and Singaporeans FDI. Increasingly, firms are relocating their manufacturing bases from China to Vietnam, with growing exports to the US. FDI from China, Japan, Korea and US especially is supporting GDP growth. In addition, tourism continues to boom in Vietnam with ~20% per annum growth rates.
  • Philippines — Up. Prime housing rose 11% in Manilla in 2018 and large infrastructure investments support continued positive performance in the short/medium term. Office rents continue to perform well due to ongoing BPO demand and tech company demand.
  • Thailand — Flat. The high-end property market has been booming in Bangkok for last two to three years, but prices flattened at the end of 2018. Recent government measures are expected to boost the low/medium end of the residential market. In addition, Bangkok office and retail rents are expected to continue to perform well over the coming 12-24 months, and the country continues to benefit from strong tourist demand as well as mid-tech manufacturing moving from China.
  • Cambodia — Up. Strong urbanisation and rising birth rates mean Phnom Penh’s population is expected to double in the next 10 years. The city is seeing healthy tourism growth as well as strong FDI particularly from China and Japan (financial services, retail and hospitality). Although there are pockets of oversupply, prices for prime property remain at least a quarter of the equivalents in nearby Hanoi or Jakarta.

Which country do you see leading in the field?

Certainly the Singaporean government has taken a very proactive approach to try to create a long-term, attractive, sustainable, stable and affordable property market — with all key government agencies (SLA, URA, HDB, MND, MAS and etc) working mostly well together in policy formation.

In addition, the country boasts one of the world’s best subsidised public housing ownership schemes (HDB). This has led to Singapore having the one of the highest rates of home ownership in the world — 91% of Singaporeans own their own homes.

What should governments do to make housing more affordable? As it is, there are various policies in place in the different countries in South-East Asia, for example restrictions as to what properties foreigners can buy — do you think this works?

Firstly, we need to define what we mean by “affordable housing”. Many households in South-East Asia are burdened by housing costs with 10-15% of owners and tenants spending over 40% of their disposable income on housing costs. The issue is much worse for low-income households: 39% both for mortgage-payers and private sector tenants. Significant numbers of people are homeless — with many still lacking regular access to housing or are living in overcrowded homes, or lack even indoor flushing toilets.

Access to good quality affordable housing is important to reduce poverty and create equal opportunities and social inclusion. To address this, most South-East Asian governments have some form of affordable housing policy — including low grants, or financial assistance for low-income buyers and housing allowances for low-income tenants.

As demand in property grows from middle and upper-class households, and prices fall suit, governments typically respond to media articles and consumer cries by targeting foreign investors. This is typically a blunt instrument as foreign buyers rarely take up more than 5% of properties in most South-East Asian countries, and these are typically the higher end (not affordable low-income) housing. In extreme cases prime residential property may be as much as 50% foreign owned… but again this is not affordable low-income housing.

Most South-East Asian governments recognise there is a severe affordable housing shortage and talk loudly about the issues of affordable housing (a popular vote winner). However, many lack a co-ordinated (and successful) approach to solving the issues — there is an estimated shortfall of 4-5 million affordable households in South-East Asia (and growing). As middle and upper classes get wealthier relative to low-income households, the wealth gap and affordability gap will only increase. This can lead to a rise in social unrest and populism that’s been seen in many developed economies in the US and Europe in recent years.

Can crowdsourcing or crowdfunding — or any other digital disruptions — make the housing market more affordable?

Absolutely yes. When we first started PropertyGuru 11 years ago, the single biggest issue we were trying to address was transparency. By providing relevant property information to buyers, we empower them to make more confident decisions. PropertyGuru continues to innovate with the focus on helping all consumers get their dream home — regardless of whether it is a $500/month or $50 million property.

Real estate is the largest asset class in the world (over US$220 trillion) and growing. However, it is also a highly intransparent and antiquated industry that has not changed much in 50 years. However, with the cost of computing crashing, rise in power of computers/smartphones and digital adoption globally, there has been a large billion-dollar increase in “proptech” investments worldwide – all aimed at making real estate markets more efficient and effective.

This proptech boom has led to the recent rise of co-living spaces, co-working spaces, crowdfunding (fractional ownership or even blockchain tokenisation) and equity release schemes — with the aim to make property more affordable, accessible and simply easier. However, the challenge remains on how to address the growing lack of low-income affordable housing across South-East Asia — this will largely need to be addressed by governments working in partnership with the private sector.

What have been your best and worst decisions – for the company and personally?

The best decision I believe we made for PropertyGuru was to single-mindedly focus on continual innovation to help consumers make more confident decisions. This was why we started the company, and this consumer-focused innovation continues today.

The worst decision I believe we made for PropertyGuru was to expand from one market to four markets in four months in 2011. We pulled all the staff focused on Singapore to then help build three new country operations (hiring 200 new people, developing websites and mobile apps, fixing bugs, training, developing marketing plans, and etc.) — this stretched the company to the breaking point over the next two years until we started to build a proper regional leadership team, and invest in processes and systems.

The best decision I made was probably to take six months out to go travelling around South-East Asia in 2004 — this ultimately led to getting married, moving to Singapore and starting PropertyGuru.

The worst decision I made personally was staying in corporate life for 10 years — delaying my real start-up, entrepreneurial journey, although it did provide me with the business and team-building skills which I used in the last 15 years as an entrepreneur!

What gives you and the company the edge, and how would you measure your success?

We started PropertyGuru to help consumers navigate the complex property process to make confident property decisions. This focus has not changed. The company invests tens of millions of dollars every year in continual innovation and content to support this. Today, 25 million property seekers use PropertyGuru every month, with one in three adults on PropertyGuru.com.sg every month.

Over the last 11 years, PropertyGuru has made the market more transparent by bringing two million properties online — many with photos, videos, floor plans, full descriptions, pricing information and etc. We publish 650 articles and research and property reviews every month, create video interviews, conduct sentiment surveys and provide property price trends. With the explosion of smartphones, our focus shifted from desktop to mobile, enabling people to use their personal property advisor in their hand. Over 60% of users now access PropertyGuru via their smartphones.

Given the rise in population, middle classes and urbanisation across South-East Asia, property developers will be busy building new homes — especially condos in the major cities. But a lot of people don’t know what it would be like to live up in the sky in that location. So, we use drone videos to give buyers a sense of what it’s like living with a view from the 60th storey versus the 10th storey. We also use drone videos to show buyers the neighbourhood so people can get a bird’s eye view of the local amenities, transit stops and schools.  We have invested in the latest high definition Matterport cameras in each country to create high quality virtual tours and 3D floor plans to allow people to get a better feel of the property by moving from room to room.

We have invested heavily in data science and artificial intelligence. This helps improve the quality of the the 15 million property photos uploaded every month onto PropertyGuru, as well as make personalised recommendations on specific properties that has led to more relevant properties matched, faster decisions and better overall consumer experience.

We’re experimenting with virtual reality (VR) and augmented reality (AR) — both of which will transport you into the property and give you a realistic tour. It is the future and we will bring our users that experience when it becomes mainstream.

Using our FastKey service, we enable consumers to view property developers’ new projects via mobile and tablet apps, compare available units in “real time”, customise their preferred unit and then reserve the unit by paying a booking fee online with their credit card.

Most recently, PropertyGuru launched South-East Asia’s first AR-enabled visual search for property called “PropertyGuru Lens”. This is our bold venture into the tech of AR combined with deep learning, making it a revolutionary product to search for properties visually — just point at a building and Lens will show the properties available for rent and sale in that building.

PropertyGuru will continue to invest heavily in innovation and content to help South-East Asia’s property seekers find their dream homes — and deliver our vision to be the trusted advisor to every person seeking property.

Could you describe your leadership style? Would you consider yourself more of a leader or a driver?

Not sure… you’d need to ask people who’ve worked with me.

I hope they would say I’m an open, collaborative, supportive and passionate leader who is not scared to get his hands dirty and lead by example.

What is the one advice you would give property investors out there?

When looking at property markets — and investing in particular — think long term (at least 5-7 years). Do lots of research, start early and do not overstretch yourself — you will want to be able to sleep comfortably at night and cope with changes in personal/financial circumstances, rising interest rates or corrections to the market.

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