Sustainability, proptech and live-work-play developments will shape the future of real estate, says KPMG’s Tay Hong Beng

Demand on the rise for more sustainable, healthier living and work environments.

Tay Hong Beng has more than 30 years of experience in tax consulting for the real estate and financial services sectors. In his role, he advises clients on complex tax issues including structured transactions, tax due diligence and pre-IPO restructuring in merger and acquisition deals, corporate restructuring, international tax planning, and investment projects.

Hong Beng has also been a key advisor to high-profile real estate transactions and tax dispute resolution assignments in Singapore. He is a regular speaker at tax seminars and has contributed articles and commentaries on current and topical tax-related issues.

Currently, he is a member of KPMG’s Global Real Estate Steering Committee and KPMG in Singapore’s Operations Committee. Aside from his roles at KPMG, he is an Accredited Tax Advisor (Income Tax) at the Singapore Chartered Tax Professionals (SCTP) and sits on the SCTP board. He is also a Chartered Accountant of the Institute of Singapore Chartered Accountants and a Fellow Member of the Certified Public Accountants of Australia.

As a member of the judges’ panel at the Real Estate Asia Awards 2022, Hong Beng talks about the key trends and developments in the industry, including government measures to address fears of a property bubble and the use of property technology (proptech) in the transformation of live-work-play projects.

What developments have been made with regards to taxation laws and management over the years, especially during the pandemic?

Real estate remains a key sector of Singapore’s economy and continues to provide a significant number of jobs and opportunities for Singaporeans. Whilst S-REITs and private real estate funds have gained in popularity in recent years, Singaporeans still consider owning a brick-and-mortar asset in Singapore a safer investment option. That said, due to a sustained period of monetary easing and low mortgage rates, property prices have risen steadily over the past decade. This has led to fears of a property bubble, with property prices rising at a much faster rate than Incomes.

There have been several measures introduced by the Singapore government aimed at addressing fears of a property bubble in the real estate market. These include progressive rounds of cooling measures over the last decade, as well as regulations such as Additional Buyer’s Stamp Duty (ABSD) and Seller’s Stamp Duty (SSD) and a tightening of the Loan-to- Value and Total Debt Servicing Ratios. These measures have primarily targeted the residential sector to slow down the rate of growth of real estate prices.

In the early part of the pandemic, to partially mitigate the impact of the Circuit Breaker on the retail and hospitality businesses, the Singapore government also provided property tax rebates to landlords of non-residential properties, with a directive that these rebates be passed on to the tenants. Also, the timelines associated with some tax measures such as ABSDs have been extended in the last two years.

Recently, at Budget 2022, the Government announced that property tax rates for residential properties will be increased starting from 2023 for homes with annual values of more than S$30,000 and all non-owner-occupied properties – the rise being more significant for high-end homes. The tax hike has been positioned more as a wealth tax, with the average Singaporean unlikely to have to shoulder its impact. But these changes could have an impact on investor sentiments for residential properties. 

What qualifies as a winning real estate project and development in 2022?

The last two years of the pandemic have given a renewed focus on the importance of prioritising wellness and good quality of life. This also comes with a heightened sense of awareness amongst the average consumer of the impacts of climate change and the steps needed to reduce our carbon footprint. Consequently, we are seeing more building occupants who are demanding a more sustainable and healthier living environment that is intertwined with nature. Sustainability has become central to the built environment and along with proptech, have proven potential to shape the future of real estate.

With hybrid work here to stay and a greater emphasis on well-being and health, the live-work-play concept is now even more relevant than before. There is also less willingness amongst people to take on long commutes. Social activities, hobbies and family time are now higher on people’s agenda than it was only two years ago. To support this move towards more live-work-play developments, adopting sustainability practices through the support of proptech will be key. Some examples of how the use of technology can support the real estate industry include the collection and analysis of data to measure environmental, social and governance (ESG) performance. It also allows for optimisations to be carried out in real-time to improve sustainability factors, such as energy usage and waste.

Therefore, what would define a winning real estate project today would be a development that incorporates nature and sustainability as well as leverages technology for smarter living, whilst encompassing elements of live, work, and play.

How can governments support the real estate industry as it continues to recover from the pandemic?

Whilst the retail and hospitality sectors were hit the hardest due to safe management measures and travel restrictions in the earlier stages of the pandemic, commercial properties have so far been shielded. This is due to the long-term nature of leases and limited office spaces. The demand has also been propped up by a trend of technology firms moving into offices vacated by financial firms that are adopting the hybrid working model. However, if the pandemic were to continue for an extended period, this may result in reduced economic activity and lesser demand for office spaces.

In addition to demand-side pressures, landlords are also facing difficulties in completing ongoing construction projects due to safe management measures and restricted access to foreign labour. The pandemic has also made it difficult for developers to deliver Super Low Energy buildings in a cost-effective manner due to issues with the supply chain.

The Government has been helping the industry to tide over the immediate impacts of the pandemic, such as cash flow issues, through tax rebates and incentives. It has also provided blueprints to guide the industry in raising productivity and becoming more sustainable through digitalisation and innovation. To encourage uptake of proptech solutions, the Government can look at offering tax incentives or grants for companies. There could also be co-funding assistance for research and development work on proprietary proptech.

Amidst a period of economic recovery marked by uncertainty, landlords could still be facing cash flow concerns and may remain hesitant about embarking on projects to retrofit their older buildings to make them more energy-efficient. Hence, to help manage costs, the Government may consider offering tax deductions and tax rebates to property owners if they enter into green leases with tenants or if such green properties are occupied or put to use for business purposes by the owners themselves. Other measures include an exemption on taxable gains from the sale of green buildings and GST rebates on imported green-related equipment and raw materials. These initiatives will not only help to support the industry as they recover from the pandemic but will also equip them with the resources to be more future-ready and resilient.

In what ways can digital transformation affect the real estate industry?

Digital transformation enables the built environment sector to harness the power of technology and Big Data at every part of the value chain. This begins from project conceptualisation and all the way to design, construction, sales and asset management. For example, by leveraging on the Common Data Environment, companies can reduce rework and wastage during the development lifecycle, thereby saving costs and time. Asset managers can better manage the energy expenditure of buildings by using smart energy sensors, making their buildings more operationally sustainable.

In the medium to long run, digitalisation will help substitute semi-skilled and unskilled jobs in the construction and asset management sector with skilled ones, as seen in countries, such as Japan, that are more advanced in their digital transformation journey. This will create new roles that could be taken up by Singapore’s homegrown talent whilst reducing reliance on foreign labour. Digitalisation would make the industry more diverse by creating more job opportunities for women and older workers.

What can landlords and property managers do to keep up with the increasing urbanisation in Asia and across the world?

According to projections by the UN, by 2050 an additional 2.5 billion people will be living in cities. The pace of urbanisation is projected to be the fastest in Africa and Asia, especially in low-income and lower-middle-income countries.

Increasing urbanisation creates a myriad of challenges, such as unplanned developments due to rapid in-migration, significant pressures on existing transport, power and utility infrastructure, and the unaffordability of housing due to rapid increases in real estate prices. There are also potential long-term impacts that will need to be tackled, including environmental pollution and a lowering of the water table.

These issues are usually the remit of town planners and regulators who can ensure the optimal use of available land and resources. A predominantly urban city-state such as Singapore can also co-opt urban planning features to ensure optimal use of scarce resources such as land and freshwater. For example, the Central Business District (CBD) is usually the most centrally located and has the best transport connectivity. Creating more livable spaces in and in the immediate vicinity of CBDs will reduce commuting requirements whilst making sure that it is utilised outside of office-hours as well.

Individual landlords and property managers can help cope with increasing urbanisation by ensuring that their developments conform strictly to the stipulated regulations whilst at the same time going beyond in other key areas. For example, they can explore the use of locally available materials and incorporate available innovations to make their developments more sustainable.

What are the challenges and opportunities for the real estate industry today? How will these challenges shape the future of the industry?

The half-life of new business trends in the real estate industry has contracted significantly. Real estate players no longer enjoy the luxury of reacting to trends – they are either amongst those at the forefront shaping the trends, or they run the risk of missing the boat completely. Players across the real estate value chain, from designers to asset managers, will need to think more urgently about questions that will shape public perceptions of their business in future: How do their businesses impact the environment? How are they protecting their businesses from getting severely disrupted by technological or regulatory changes? How are they managing the conflict between the adoption of Artificial Intelligence (AI) and data privacy?

The real estate industry is accustomed to coping with disruption. Whether it is macroeconomic and financial cycles, natural and man-made disasters, or various severe weather conditions, the sector has routinely overcome design, schedule and budget changes, supply delays, equipment failure, labour disputes and accidents.

As we have seen from KPMG’s 2021 Global Construction Survey, 64% of those in engineering/construction sectors said they were not prepared for the pandemic but were able to respond quickly and decisively to recover, whilst 34% said they were well prepared and adapted well with little impact. Only 2% responded slowly and expected a delayed recovery, whilst 1% said they may not fully recover. Ranked high on the list of whether construction companies can deal with disruptive events are company leadership (92%), the adoption of technology (77%) and the maturity of business continuity programmes (67%).

These global trends are a good mirror for what is happening in Singapore’s real estate industry. How quickly players pivot towards technologically efficient methods and how they steer their business with consideration to sustainability and business continuity will impact their ability to respond quickly to challenges posed by the pandemic and the tightening of access to foreign Labour.

In Singapore, the evolving business environment has created an opportunity for developers to invest in differentiated asset classes such as satellite offices and live-work-play concepts in the CBD. In the medium to long term, it is also an opportunity to create sustainable products, technologies, and supply chains to reduce embedded and operating carbon.