SGX has to weigh between traditional blue chips and tech: Steve Melhuish, PropertyGuru

CEO Hari Krishnan with Vice-Chairman Steve Melhuish

Southeast Asia’s largest realty portal PropertyGuru has been in the news off late – for its leadership transition, and when it announced to defer its public listing plans amid the volatility of public capital markets, earlier this year.

In September, the realty portal had promoted Hari Krishnan, former chief business officer, to the post of chief executive officer, while Steve Melhuish, who had been CEO until then, took over as vice chairman.

In a recent interaction with DEALSTREETASIA, the new vice chairman Melhuish, said that he would operating in a more strategic context, guiding the company’s growth amidst the various changes that confront the online property platform.

Edited excerpts:

What are the major factors inhibiting the IPO pipeline of the SGX as you see it? What do they need to improve and will the newly introduced dual share structure have any impact?

The SGX has a challenge on its hands. From our point of view, the SGX would make sense for lots of reasons but we will probably not go. Liquidity is very low. There have been three tech stocks listing in the last three years and none have performed well in terms of trading volume, and this is coupled with the widely publicised technical failures.

The SGX has done seven IPOs at $1.2 billion and HKSE has done 37 at $6 billion. Clearly, the SGX is losing out, and the lack of trading volume doesn’t help at all. We don’t really have many comparables from a tech perspective beyond ifast, Yuuzoo and Trendlines.

And those three tech businesses have seen their valuation come down from 40 per cent  to 70 per cent  in last three years, which is not helped by trading volume or the factors.

The SGX has to choose: mature and develop as a more traditional mainboard or compete directly with the bourses in Hong Kong, Shanghai and Australia; it has to choose between targeting traditional blue chip businesses or smaller cap tech corporations.

Does it have a future on its own? I don’t know. The recently introduced dual-class share structure which is seen in more mature markets is something which is very popular – 20-21 per cent of all IPOs have had dual class structure on the NASDAQ.

The development brings the SGX more on par with other bourses and will definitely help with IPOs for a tech or founder-led organisations, in terms of giving a larger voice to the founder who brings ideas and innovation, which is not a bad thing. It is something we welcome and it a good move but not enough to get the ball rolling from a tech point of view

Is a secondary listing on the SGX a possibility in the future?

There’s more costs and administration associated with such as move. We’re Singapore-based and in terms of managing investor relations, it only works if  you’re of a certain size. We’d consider it as part of the second phase of an IPO if we were to IPO, so we’d do an IPO elsewhere and then do a secondary listing.

But that’s not our current priority. We closed a round 14-15 months ago so we’re fully capitalised and don’t need extra cash, unless we decide to go public.

We enjoy being a private company not under the scrutiny of analysts and other observer. My new role is thinking longer term about where the business is going, and a public listing means we’ll be thinking short-term again.

What other property-related segments and services do you see Propertyguru expanding into?

The first thing to say is that seven-eight years ago, it was to try and overcome the frustration of looking for property. Back then it involved looking in a newspaper and reading three lines of classified text.

So over last several years we’ve brought the property market online and its far more transparent. Is it now easy to buy property and navigate the selection and rental process? No.

It’s a lot better but questions arise around property listing and inconsistent agents. The way we try to improve that – and we improved our algorithm 2 years ago – is to improve the listing of agent and enhance photos. We saw that drive 78 per cent more enquiries for good quality listing and three times the views.

If you think about the property process, what I foresee is more developments in the areas of digital contracts, greater pricing transparency and financing options such as crowdfinance or digital banks providing financing – an adjacent process around property – as the basics are quality of property advertising and resolving the inconsistency of agent responsiveness.

What’s your take on Singapore planning for a population of 10 million? Is this reasonable or even sustainable?

Singapore is obviously fairly densely populated and has driven the expansion of its usable space. It’s the third most densely populated place in the world I think, with its population of 5.6-5.7 million, which has been a significant increase. Now, how significant is it?

The population is growing 1.6 per cent and if you compare with 2005, the current figure is almost 3 per cent and so we’re adding about 130,000. Now of course we’re adding less. The population is growing and the challenge is ensuring that infrastructure investment keeps pace with that growth.

What I observed in the property market over last few years is that population growth happened so fast that it caused a significant surge in demand for housing. This is short-term pressure, with the BTO flats driving large increases in demand.

We’re adding 94,000 per annum, so how long is it before we get to 10 million? That’s 50 years, and in that time we need to make sure the infrastructure can handle the stresses associated with that.

If we go to 10 million – what doe that mean for housing. reclaiming land can solve that a bit; they’re shifting the shipyards like Keppel and consolidating them in the western districts of Singapore for instance. Land reclamation is also one way, as well as building smaller properties (e.g. micro-apartments with 250-300 sq ft for single and young couples).

Singapore can continue to build upwards and downwards and more infrastructure underground in terms of road, trains and shopping malls – Ion goes down  four levels – so it’s about more efficient use available space while making sure that there are enough green spaces outside.

With regard to the use of subterranean spaces being used to grow the city, what sort of pricing do you foresee for such subterranean properties?

It’s hard to give a  view on that, as traditionally, property pricing works on the square footage of land. Just because the land is underground than above ground, why should that change?

I’d argue that the pricing would be a similar model to what you see with condos, though I think there’d be a discount on the fact that you don’t have a great view. Is there an appetite for people living underground? I don’t know.  That’s something that needs to be tested. But for having shopping and trains underground? Yes.

The Seasteading Institute has a floating city project that seeks to develop an autonomous floating city, What’s your take on floating real estate and floating cities? Do you see them as viable solutions to land scarcity and urban sprawl in coastal cities like Jakarta and Bangkok?

What are the drivers for this? Urban sprawl in cities like Jakarta and Bangkok, which are beneath sea level and prone to flooding as a result, can provide the impetus for countries like Indonesia, Malaysia, Thailand, Manila  and Singapore to an extent to come up with housing solutions that can cater to climate change.

For instance, with the temperature of the climate increasing, the impact on Singapore could potentially see up to 745,000 people losing their homes, meaning that this is a real problem that has to be addressed. Increasing sea defences and protecting Singapore from future flood risk is one approach; Indonesia is doing this in Jakarta by building a sea wall of the northwest coast of Jakarta to protect it’s against flooding and sea level rise.

Does a floating city solve the problem? It’s one of the potential solutions. With land reclamation, you end up building on the new land, so why not float it instead? You can have it moored in a harbour or out at sea and I see it as a potential solution.

But will people  want to live on them? I’m not sure. And to rapidly build it using shipping containers as affordable housing – is that something that people might aspire to? It’s a brand new concept that people have to get their heads around, as well as assessing their appetite for it, and its market potential.

In Malaysia and Indonesia, the governments are all struggling with solutions for affordable housing. From a global trading perspective and the current downturn, the shipping sector is under pressure, which leaves a big surplus of ships and containers that could be put to better use perhaps.

Urban Rigger is a Danish startup that repurposes shipping containers as housing and for use as floating water properties. Do you see that taking off here or elsewhere in Asia? What’s the potential for such a solution in Singapore?

I see that being a potential solution for student housing, affordable housing, especially in terms of shipping. Whether it’s an aspiration is different…well,  buying a home in Asia is very aspirational. My guess is that it’s probably not an aspiration to live in a container boat.

It’s addressing a different segment of the market in terms of affordability. Is it a replacement for a condo lifestyle? I’m not sure but I suspect probably not. It wouldn’t be the sort of startup we acquire and we are doing other things that are core to our business.  Would we promote it? Absolutely. It relates to our core value of making sure that everyone needs a home.

What companies have you invested in and what drives your angel investment thesis?

In 2003, the first company I invested in was called Leiki,  a Finnish tech company started by a mathematical genius – Petrus Pennanen – who was teaching at the age of 14 in the University of Helsinki.

Petrus had developed tech in 2003 that learns behaviour and therefore allowed publishers to personalise content advertising, which was bleeding edge when he started. He didn’t capitalise on it but they power things like the FT website and a few other publishers, as a recommendation engine based on behaviours. That was my first investment.

In 2006, I invited in a mobile comic company called Comi Asia.  I came in as a small angel lnvestor and I liked the business, because it had passionate founders who liked comics and it served as a social network and community portal for people to make and trade their  own comics. They had a digital comic generator that people could upload files to – this was in the pre-smartphone age – and they had tech to compile and digitise it. Unfortunately, the original investors fell out with the founders in the end.

In 2007, I launched Propertyguru and invested it as well. It’s my biggest investment and I wasn’t taking a salary for the first 5 years. More recently is Redmart and 6 months ago I invested in Jirnexu, which owns Ringgit Plus .

Redberry Media, which owns the Malaysian Reserve and Malay Mail, as well several outdoor advertising agencies – we had  a JV when we launched in Malaysia – the son of the owner of Redberry Media Group, Yuen Tuck, asked me, “What would you do if you weren’t running Propertyguru?”

I told him that I’d start a financial comparison engine and build a business around that. He then showed me what he’d worked on and what he’d made – they’re  strategic partners with Maybank in Malaysia – and when it came to raising their Series A I put some money in.

What I look for is founders with the resilience and grit. They’re hungry and smart, are addressing a real pain in the market and there are signs of traction for that business? Is the business showing signs of momentum? That’s my thesis.

What’s your take on singapore having a startup visa?

Singapore’s got the Entrepass, which requires S$50,000 in paid-up capital plus a 30 per cent shareholding with a Singapore entity. So I think there is a startup visa as such. The challenge as such is the costs; the cost of people and cost of finding and hiring good talent, and of course the real estate costs are high.

Per square feet, it’s S$8-$9 in Singapore’s CBD, while in KL it is 8-9 ringgit per square foot with 50 per cent of the salary. There are other challenges but there is also a real talent war which is driving massive competition for good quality people; the cost to hire a developer now is $7000 when back in 2007 it was closer to  $1500. The cost for software developer has gone up significantly as well as real estate.

In 2007, there was very little digital tech competition. But now, with companies like Twitter, Facebook, Uber, Airbnb, and Google…well, more startups coming in and they’re all looking for the same talent so it’s extremely hard. In the medium to long-term it’s almost non-viable to have a business sitting in Singapore and you’d be crazy not to look at Indonesia and Vietnam as locations for building parts of the business.

PropertyGuru has moved some of our operations and finance into KL and built our second software development centre in Bangkok – about half of our software engineers are in Bangkok. Other governments are also investing in startup ecosystems, such as Malaysia and Thailand. Business is growing faster now than in  the last 2-3 years, with that growth focused on Thailand, then followed by Indonesia and Malaysia

The Thai market is very interesting. It’s entrepreneurial, fast-moving, and creative. I like Thailand, it has a lot of potential. Malaysia is also like a second home. So after five years of investing outside of Singapore, in the last 18 months we’re really seeing strong growth.

The challenge is that the government [Singapore] is walking a tightrope to keep everyone happy. It can’t be seen to be favouring a sector over another but the outcome is restricts growth and impacting commitments to growing a business in Singapore due to rising costs.

Singapore has been attractive in attracting big names and investing heavily in those but medium-size companies like ourselves are finding it harder and harder to hire foreigners. Our product and technology teams are 90% foreign. By comparison, our operations and sales & marketing, as well as customer service teams are all Singaporean.

We spent time with NTU and NUS to hire local software developers and we ended up hiring Vietnamese and Chinese graduates from NUS. Our data science team is hired from NUS. It’s rather hard to get Singaporeans in the product and tech space. So this raises questions like how to reskill as the economy shifts towards being knowledge-based? How do we make it cool so that more Singaporeans want to do it?

Also Read:

PropertyGuru buys batdongsan.com.vn, Cyberagent exits

Singapore: PropertyGuru names Hari Krishnan as CEO, founder Melhuish to oversee strategy

Exclusive: Singapore-based real estate portal PropertyGuru defers listing plans

Singapore: Digital property agency Greyloft closes $1.1m seed round

Japan: TH Real Estate acquires Ginza office building in $82m deal

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.