Land May Be Scarce In Singapore But REITs Opportunities Are Not – Dhruv from Syfe

REITs (also known as Real Estate Investment Trust) is a popular investment tool that has garnered many fans in land-scarce Singapore. What is so appealing about REITs in the Singapore stock market and how do we evaluate one? 

Chills 18 of The Financial Coconut dives into the topic of REITs with host Reggie and his guest, Dhruv, who is the founder of a leading robo-advisor, Syfe. They talk about why REITs are so attractive to many investors (which other investment tool pays out 90% of its income as dividend?!) and how REITs in Singapore are less volatile compared to overseas REITs. 

Dhruv also provides many helpful insights on some questions to think about when choosing a REIT. Do we view REITs as a growth or value stock? Should we be concerned with local REITs that are acquiring foreign property? What are some characteristics of a good REIT? With the recent global trend of remote work, what will the future of REITs look like? What are some up and coming industries to watch among REITs? 

If you REIT-lly want to find out how REITs can be a valuable component in your portfolio, this is definitely an episode you do not want to miss.

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podcast Transcript

Reggie: The Singapore stock market seems to have limited growth and it’s very difficult to get people excited about it, especially when it seems like there are huge opportunities all around the world. But there is a class of tools known as REITs: Real Estate Investment Trust that somehow has a lot of love. So I had to bring on someone to talk about how we should evaluate the SG REITs market, especially when you’re seeing a lot of local REITs going on an acquisition of foreign properties as they scale. I mean there are not a lot of properties here anymore… [chuckle] so how does foreign exposure then affect us local guys when we don’t want to entertain Forex risks? How do you know a REIT is worth further looking into? For that and more, welcome back Coconuts!

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Welcome to another Chills with TFC session. In this series, we want to bring on interesting, relevant people to help us learn better from various perspectives. Life is not always about  learning from people that you already agree with. Perspectives shape a rounder thinker in our pursuit of the live we love while managing our finances. 

Well, our guest for today is someone that you’ve probably seen around disturbing your YouTube videos, but I’m not talking about fake gurus yeah. He joins me to discuss the various REITs themes and fundamentals: how to evaluate them. So let’s welcome Dhruv, founder of Syfe, a leading robo-advisor in Singapore. 

So you guys are super synonymous with REITs essentially. That was kind like… when I first saw, I was like “ah smart, trying to do like market differentiation”. You don’t want to be the same with everyone else. So could you give me a core idea of why REITs here in Singapore? 

Dhruv: Yeah, sure. I mean, see, at the end of the day, I think at the core of it, what we were trying to build at Syfe is not a robo-advisor, right? I think which is, I guess what many people would synonymously compare us with some of the players in that domain. I think what we want to do is we want to enable and empower our customers and sometimes the answer of that can’t be one portfolio in some regards. Sometimes the answer to that can’t be just a globally-diversified portfolio. 

So to be honest, the idea of REITs was more driven from the fact… of us understanding our users and understanding the need of passive income and essentially users wanting something that will give some sort of stable source of income. Now, as you know, REITs have this very unique characteristic that 90% of the income has to get paid out as dividends, which is the reason why, even last year, the average was a 4%, which is great given where the world and where the interest rates are going. 

Reggie: [laughter] Yes. 

Dhruv: So the idea was more around finding tools to generate that and I think Singapore fortunately has a great REIT market, also the second largest in Asia, after Japan. We obviously have very close ties with the SGX which had the iEdge Leaders Index and now we obviously work with them. We got officially in a partnership with them and we love the index. We loved it much more than some of the other benchmarks that we saw. We obviously have our own filters and mechanics which we can talk about a bit later. But the idea was essentially, you want to give a tool to customers to achieve what they want. 

Now, you can tell everyone that they want a globally-diversified portfolio but their perception could be different. They might not want that 8%, 10% with that fluctuation. They might be more comfortable with a 4% with something they can look and feel and REITs are great, because at the end of the day, these are physical assets. I always say in my view, the beauty of REIT in general is that you’re essentially buying a piece of land indirectly in some ways, right? They can be broader economic things which can move the market 10, 20% down, but something has to go drastically wrong for it to lose 80, 100% of its value, which you can’t do the same for a tech company which is poorly managed or something of that sort.

Reggie: Yeah. 

Dhruv: So I think for us, it was more about addressing a need and everything that we do and what we’ve done like the portfolios, whether it’s the core portfolio, which now we launched and so on and so forth it’s all built around addressing a need other than oh REITs, Singapore. Cool. Let’s do it. 

Reggie: [laughter] 

Dhruv: So there’s a bit of thought that goes behind these things. Yeah, 

Reggie: For sure, for sure. 

Dhruv: Yeah, and I think one thing very cool we did was we added a component of risk management which people actually really love and what happens is in volatile markets, we decrease the REIT component and automatically increase the bonds. Cap the rate at least to 50%. It won’t go below 50%, which was great because last year when REITs had come off by 20, 30%, our portfolios was only down like close to 10 or 12% because this bond actually rose also in value. Because everyone was buying bonds at that point. 

Reggie: People were balancing [indiscernible]

Dhruv: Exactly. So what happens is people did not lose much and because they did not lose much, they stayed invested and as the markets have recovered and everyone’s happy right now. 

Reggie: Yeah, yeah, so that’s the cool part and SG REITs is like so synonymous with dividend play.

Dhruv: Yeah. 

Reggie: Because there is no tax on dividend in Singapore. 

Dhruv: Exactly, yeah. 

Reggie: So… 

Dhruv: Even for corporates 

Reggie: Yeah. 

Dhruv: … and individuals globally, right? So it’s great. 

Reggie: Exactly, right? So people are super big on REITs as a dividend play here, but it’s not exactly the same everywhere else. Like in the US, rates can be very aggressive, right? 

Dhruv: Yes [chuckles] 

Reggie: It is a vehicle, people buy and sell property under the vehicle and then it can become very much a growth play. 

Dhruv: Yeah. 

Reggie: So I’m just trying to get your sense that in Singapore, when I’m investing in REIT, do I look at it strictly as a dividend play or is there growth opportunities in this space?

Dhruv: Yeah. It’s a great question Reggie, because if you think of it, dividends itself by concept is like value. You’re trying to seek a certain value out of it, right? 

Reggie: Yes. 

Dhruv: But the reality is you only get growth if you reinvest. Then you don’t pay out and you actually reinvest the resources, right?

Reggie: Yes. 

Dhruv: So somewhere actually, it’s a little tricky because actually you want the value, but you want the growth also in some regards. 

Reggie: Yeah [chuckle] 

Dhruv: So to some extent, I almost would not put them in the same light, like of value and growth, which you sometimes put for conventional US stocks. But if you have to go closer to one of the two edges, I would probably inch a bit closer towards value. I think you will probably not see that crazy level of growth in REITs over time, but you will see a more sustainable value-driven growth. And that’s perhaps the view that I would take.

But again, I think it’s probably a bit off, given… you know what I mean, right? Basically, you want to see the value, but you’re like “hey, where’s the growth?” But you are seeking the value, that’s the  whole point. So… 

Reggie: Yeah, yeah, I get that and that is the dichotomy that a lot of people will face, especially younger investors trying to straddle this space. Because the underlying asset is the property. 

Dhruv: Correct. 

Reggie: So we got to see it from the property level if we want to see massive growth if not everything on top is just financial engineering, right? 

Dhruv: Yeah. 

Reggie: So at the core of it, our REITs here are not going to be growing a lot and in a sense of “ah, local REITs not gonna have the kind of growth, because they have no properties to buy” or… [chuckle] what is going on? 

Dhruv: I’ve been hearing this. I heard the story yesterday that someone bought a house off for $100 million or something, off the British High Commission. I was like, man, and that house was sold in 2003 for $20 million. I mean, 5x in 18 years [indiscernible] for a house of that sort. 

Reggie: For sure, for sure. 

Dhruv: But I agree, I think… 

Reggie: But it was like collector. 

Dhruv: Yeah exactly [indiscernible] There’s no price for those things. 

Reggie: Yeah, no price for those things.  

Dhruv: I mean, you name a price and he has a cheque, right? 

Reggie: Yes yes.  

Dhruv: It’s easy. As a buyer, you name the price, I’ll just write a cheque, right? I agree with you, I think it’s probably more aligned to value than growth in that regard. Yeah. 

Reggie: In that sense, we’re seeing some of the REITs here locally, they are acquiring foreign properties, not so much in Singapore. There’s probably not much left. So when they are acquiring foreign property, what are some things that we need to be concerned about? Because that will increase foreign composition, right? That may increase management costs and those kinds of things. So I just want to hear from your perspective. What are some things that you need to be very cognizant?

Dhruv: It’s a great question. I think there’s something that even we look in, when we end up deciding our kind of REIT pool. So I think it comes down to why you’re actually investing in that REIT. If your view is to get some sort of a passive income, which is…. I presume Singapore dollar denominated. When you add… start in foreign components, you do add a layer of currency risk, where the currency could move either way, either stronger or weaker. 

Plus of course, there’s always this concern that what if you can’t really end up controlling the setup? I think it’s probably easier when an acquisition is made in US or in Australia where it’s a bit more sorted, legitimate market. You will get your property in some ways… 

Reggie: More mature in this space. 

Dhruv: … versus more like an emerging market, where you’re  like “alright, you can have it, but you’re not allowed to come in until you get a vaccine or something”. I don’t know, I guess the point that comes down to is that I think to a certain limit, that diversification actually is very healthy for the same reasons, because you’re not… putting all the eggs in the same basket. But I would still suggest that generally, if the purpose you’re looking, at least the way how we construct the purpose you’re looking is as you do nomination, and it’s a very local, Singaporean… 

Reggie: That’s what I want. 

Dhruv: That’s what he wanted [indiscernible] then if you’re going to go global, then here? Why… 

Reggie: Here? [laughter] 

Dhruv: Why REITs? The whole world opens, right? You want to buy the Amazon or Tesla or General Motors, whatever, at the end of the day. So I would say that a little bit of diversification is healthy. I think, perhaps as we say, diversification is the only free lunch in town. But I would say that if it starts becoming like 40, 50% of the portfolio, I would definitely be concerned. How do I say? Then I’m probably going on a growth story rather than a value story… 

Reggie: Exactly, exactly. 

Dhruv: … cause I’m taking a punt on currency and you saw last year, right? The currency moved back by 10%, from the high to lows. This is a serious move, and if this is your kind of passive income and this is your retirement income and all, you probably don’t want that in my view.

Reggie: Yeah. I totally get that. Which is why I’m relatively concerned to see a lot of local REITs having acquisition abroad and all those kind of stuff. 

Dhruv: I think a limit is fine. I mean, I don’t know what the right number is, but I would say if it’s like 10, 20% of their book, fair. If it becomes like 40, 50%, then you’re actually not really investing in local REIT you’re actually investing… 

Reggie: Exactly. 

Dhruv: … internationally, right?

Reggie: You’re going abroad. 

Yeah, exactly. 

Growth story and all this kind of stuff. What are some matrices that you guys look at when evaluating a REIT? I know different sector and all this kind of stuff, but what are some broad matrices that matter in selection of a REIT? 

Dhruv: Yeah, so from our perspective, generally what we… of course, we obviously work very closely with SGX because they have the Leaders Index which has about 46 REITs in them. Now, I think one of the things that we’ve done is that because we think of it like a passive income [indiscernible] we consciously do not choose any non-SGD denominated REITs, because we don’t want… for example, Manulife US. The reason we haven’t chosen… I think it’s a good REIT. The reason we haven’t chosen it is because it defeats the purpose that we are trying to achieve in terms of the setup. 

But first and foremost, I think what we will look at is something like the eligibility, which is like the free float, like what’s out there. So basically, it has to be at least a minimum of 20%, which ensures that okay, this REIT is then eligible to be in the index and hence part of our kind of portfolio. I think secondly, very important… I think very relevant in Singapore and I remember this from my trading days at UBS. Singapore, generally, it’s a lot of waiting game if you ever trade the markets and all that… because if you cross the spread, in many cases, you’ve lost half a percent or a percent, which is significant especially if you’re making an investment in some regards. 

But generally, if the stocks are liquid enough, they have enough secondary liquidity, what that means is that you can easily buy or sell. For us right now, we need things where… on days we’ll be buying like millions and millions of dollars of a single REIT. Now, if that liquidity is not there, we can significantly start impacting the market which we don’t want to do. 

Reggie: Yeah. 

Dhruv: So the second very important criteria for us is what is the secondary liquidity? Because if that’s not there, then essentially, at least to poor execution and a poor end point for for our clients, then we of course look at market capitalization. I think generally, larger REITs are better poised to weather the storm and you see this time and time again. I think we’ve seen it last year also, right? When these things happen, they can take that 10, 20% hit much more easily versus the smaller REITs. So market cap plays a very, very big role.

Then we also look at the quality of the managers. I think that plays a very big role because getting the right kind of sponsors who has to speak ensures you have access to basically capital going forward. Because when Capitaland goes out and gets money, they get it much easier as compared to, let’s say, some of the other smaller kind of REIT players. This again helps either when you’re expanding or you are basically in a bit of a tough situation, like last year. And I think this is a critical consideration because at the end of the day you have the REITs, which might give you 8% dividends. But if the REITs don’t themselves survive, then you have more serious issues. So it’s a trade-off. 

And I think the last thing that we look at is actually diversification when we basically build up portfolios. This again was… a great example of it was last year, as I mentioned earlier, I think diversification is the best thing you can do to your portfolio. It’s the only free lunch in town, as we say. What happened was when we build the portfolio, we had everything from retail to hospitality to data centers to office space, commercial space… everything together. Now, because what happened last year in around March etc, the office spaces of course were really hit.

But in reality, if you look some of the industrial research, (they were) actually up. Even in the month of April, they actually were outperforming [indiscernible] up on your end, things like that. So having that balance ensured that you’re not seeing that 40, 50% corrections that some of the REITs were at one point looking to face. And the beauty of it is that if for example, even after all your rigorous election, if one of the REITs just completely backfires, it’s a part of your portfolio, right? You will not lose your sleep on it. 

So we get this question”can I lose 50% of (my) portfolio?” I wouldn’t say it’s not possible. But in reality, there has to be something drastic, right? 

Reggie: Like a bomb. 

Dhruv: Like a natural disaster or something like that sort. And then I guess we all are… we all have bigger problems, right? 

Reggie: Nobody is protected. The financial market is no longer important. 

Dhruv: Absolutely, right? But again, I think at that time, a lot of people kept on saying “hey, why aren’t you selling offices? Why are you buying more residential?” and so on and so forth. And we want to audit the view, right? Listen, the idea is diversification, right? If office spaces for a very long time will never get used, what do you think is going to happen? They’ll make them homes. It’s standard, right? 

Shophouses are a great example. They are sometimes shops, they are sometime houses and sometimes they’re backdrops, right? I mean where I live, the shop house which keeps on getting changed every two years. It’s a shop. Some day, it’s someone’s house. Some days, it’s everything… and I feel the same thing would happen in this space, which was an argument there. 

Of course, the bigger argument was that we will go back. These are videos on YouTube from  6-7 months ago. People are like “oh, you should send all this thing.” And I’m like no, this is a conscious choice. We are diversifying. And in fact, the portfolio has done well because as vaccine news has come out, as we move to 50%, as we move to 75%, these things have actually recovered the most. 

Now I can say that we are the guys who picks one REIT, buy today, sell tomorrow and so on and so forth. We can do it, but that’s not what we want to do. What we want to do is build a diversified…. The view is a long-term view, but at the same time, there’s diversification… ensures you don’t lose a lot of your resources, but also get what you really started.

Again, going back to your first principle, I’m doing this for passive income. I’m doing this to get my 4-5% and that is something which is… and I genuinely think given how the Singapore market is, I just think it’s going to get more expensive. With more… you’re getting all these companies coming in, buying like offices and so on and so forth.

Reggie: Exactly, exactly. 

Dhruv: I genuinely think if you have SGD funds, I would also recommend investing globally and all. Don’t get me wrong, but your SGD piece… I think there should be a very big part of your portfolio. It is definitely a big part of my portfolio because I think there’s a story of growth also. As I said, I’m not going to bet on it, but I think the value and over time it’s far… going to outperform any other fixed deposit, options or whatever you have. 

Reggie: For sure, for sure… which is the whole passive cashflow generating kind of strategy. 

Dhruv: Absolutely, yeah. 

Reggie: In the process of deciding these REITs, I think you talked about management, right? So management is always this big question mark, grey zone discussion, because if we’re talking about balance sheet, we’re talking about numbers, these things are relatively undeniable. They are there. 

Dhruv: Of course. 

Reggie: They are objective measurements. So how do I know if my REIT managers are doing a good job? That’s the question. 

Dhruv: Yeah, it’s a great question. I think one way to do it and… I know the saying and I should caveat it with an asterisk: past performance does not promise future results. 

Reggie: Yes yes. 

Dhruv: But generally how some of the REITs have performed and handled situations… for example, I remember some of the REITs last year, they did prudently for the right reason, cut dividends. Now, to a layman, you would be like “oh, you cut your dividends. You’re a terrible REIT. You’re a bad sponsor.” 

Actually, no. You did the right thing. That was the right thing to do. You got this extra buffer to weather the storm. What realistically is going to happen, I presume is that when the next time it comes around, they will pay that back out. But they have that option and did the right thing because not paying our dividend is always going to be much better than going out and externally sourcing capital, which was getting tricky.

There was this liquidity crunch and all between March and April 2020. We’ve all lived through it. So, I think it’s a bit more like… 

Reggie: It just felt like yesterday. 

Dhruv: It does feel like yesterday… man, sometimes I would say “oh yeah, I remember last year I went to Phuket” and I was like “last year was 2019”.

Reggie: Exactly!  

Dhruv: 2020 is a write-off. 

Reggie: [jokingly] Let me out, guys let me out. 

Dhruv: Yeah, Pulau Ubin is my new favourite hangout. 

Reggie: [laughter] yeah.

Dhruv: Back to your question, I reckon seeing something, how they’ve weathered in some of these situations. Seeing 2000-2010… generally the management does not change very regularly, so you actually see how they’ve handled these situations… can be a good proxy. And it goes into a lot of factors when we see how some of these players do. 

Reggie: So in Singapore, there’s a lot of talk about good sponsor as a management…. gotta get a good sponsor for your REIT, which is not the talk everywhere? 

Dhruv: Yeah. 

Reggie: Not every country, when we talk at REITs, whether it’s in Japan or whether in the US, it’s not as big as a discussion here compared to having a good sponsor in Singapore. So I’m curious, why is that so important, unique to the Singapore REIT market?

Dhruv: Yeah. I would say mainly two reasons. I think the first one we briefly covered, which was access to capital when things are good and when things are bad, and I would say cheap capital more importantly, right? If you are a good sponsor, people are more comfortable. You know, I’ve spent most of my career in a bank, you would give a good sponsor with a good track record etc a much lower rate for a higher value versus somebody gives you a higher rate, but you have a higher risk. So I think that access, that cheap access to capital really helps accelerate plans because I think people who don’t have good sponsors would want good sponsors, because it’s… nobody would mind cheaper because it affects your bottom line, it affects your return. 

I think the second aspect, of course, I think of the good sponsor comes into play is that as you mentioned, many of the REITs are now looking overseas. I think generally, good sponsors predominantly you would expect them to have a broader network and reach, and also better understanding some of these jurisdictions versus if you’ve never really stepped outside Singapore and you just go outside and go ahead and buy. It’s always, always a gamble. 

So I think it’s interesting. It’s like a cumulative effect which just keeps on getting bigger and bigger as… it’s like the good get better in some ways, right? Well until they don’t, I guess. 

Reggie & Dhruv:[laughter] 

Dhruv: But I think mainly these two reasons: access to the capital and access to better understanding, especially as you said, Singapore… we can’t reclaim fast enough. So basically this is going to be a very common trend you’ll see going forward, and I think it’s prudent for the companies to do it. Of course, I think if it crosses a certain number, I wouldn’t say it’s necessarily bad. But I think then you have to rethink because then it becomes a currency risk and all the different factors that are coming into play, right?. 

Reggie: It’s gonna mess up your equations, right? 

Dhruv: Yeah, yeah. That’s a good advantage of being on Syfe REIT+. We do it for you. We rebalance… 

Reggie: Eh shameless plug? 

Dhruv: Shameless plug. 

Reggie & Dhruv:[laughter] 

Dhruv: I haven’t spoken about this yet. I promised myself I’d speak about it every three minutes at least once. Yeah.  

Reggie: [laughter] Nice, nice. So then, in your portfolio and in the broader market here, there are all sorts of REITs. 

Dhruv: Sure.

Reggie: A lot of different choices. So I just want to pick your idea on some of your opinions? What are some of the REITs that you think will outperform market expectations? So this is purely educational. We’re not giving you advice and all those kind of stuff. But it’s just… the market now is definitely a lot more settled than before. 

Dhruv: Sure. 

Reggie: But… 

Dhruv: The commercial REITs made a comeback. 

Reggie: Exactly. A lot of them have come back. So I want to hear your thoughts on which sectors do you think are pretty interesting to look at it? 

Dhruv: I think this view we had even back then, I don’t think the commercial sectors and all have come back and will continue coming back. I feel… I (have) just been moved to a new office, and this was fortunately before the 75% ruling came out. And man, we struggled for a 10% discount, pre-COVID levels and this was when we were negotiating in the month of Jan. You know what I mean? I was like, hang on guys…. 

Reggie: Isn’t it a shitshow now? 

Dhruv: [indiscernible] a couple of things. First, we do not have that many free offices at least. We have a decent-sized team now, getting that together. We realized the REITs have really come off, and I think now it’s only probably going to accelerate a bit more with this thing. But having said that, that does not mean that I’m advocating commercial, these are the best buy… in that regard. 

I think our view was same what we had in the last 6-9 months. I think that there will be some permanent shifts in behaviour which have happened and which will remain, and I don’t think we will return to BAU (Business As Usual). Even now, we are almost certain we might not ever turn to a 5 day work week. It might become 4+1 kind of thing. But… 

Reggie: I know, I can envision that. 

Dhruv: I can envision that. Yes yes. 

Reggie: I would love it. Just saying, right? 

Dhruv:[laughter]

Reggie: All you employers out there, 4+1, 3+2 or whatever. People don’t need to go into office every day. 

Dhruv: Exactly, exactly. Yeah. So the sectors that I think are very interesting, I think are going to be sectors around the industrial REITs. I would say the ones that are like logistics and data centres, because I feel… basically what last year has done is if you looked at any tech company like ourselves, you made your forecast. You’re like “okay, this is 2020. We are here. In 2023, we’ll be here. In 2025, we’ll be here.” Essentially, this one year has compressed the next two or three years. So this move was already happening, but this shift has accelerated, but I still think it has more to it. 

So I would say probably these sectors remain our topics per se, right? Like logistics, healthcare, and industrials. But having said that… some of them have really run up and that’s why I honestly… if you are going to tell me to pick a REIT, I will not. I will… still in a binder diversified portfolio. 

Reggie: Yeah.

Dhruv: No shameless plug this time, but that was a plug actually. 

Reggie & Dhruv: [laughter] 

Reggie: That is the base case for most portfolios out there, which is great. 

Dhruv: Absolutely, absolutely. That’s what I would suggest. Absolutely. 

Reggie: Yeah, exactly. But I do think some people, they want to have a little bit more concentration instead of [indiscernible], with that broad base at the bottom. So that’s that. 

Dhruv: Sure. 

Reggie: I just want to pick your head a little bit further about logistic REITs. Because logistics is this super unsexy thing that people don’t usually connect with. 

Dhruv: Yeah, yeah. 

Reggie: It’s very far flung out from your day-to-day life. So sometimes we talk about it, but people don’t really understand. 

Dhruv: People don’t know what logistics are. 

Reggie: They don’t understand. They cannot envision it until Suez Canal happened.  

Reggie & Dhruv: [laughter] 

Reggie: So all the memes come out. 

Dhruv: Yeah, yeah. 

Reggie: I just want to get your idea on how should we look at logistical REITs? Because there’s a network over here that makes it powerful. So I want to hear your thoughts on that. 

Dhruv: Yeah sure. I mean this is… I used to, a couple of years, the previous startup was in e-commerce and it was very heavy inventory-led. We had these massive warehouses. We’re talking about warehouses, a hundred thousand square feet size. Having, I don’t know, like 10, 20,000 different kinds of products and then multiple of them, so at any given time, you have millions of products just in that warehouse, if you combine everything out. So basically, what logistics we essentially are doing is that they can either become places that typically might become feeder stations to the end consumers, like places where things get aggregated and disaggregated, so on and so forth. 

To give you a very interesting example, I think in the US, when the prices in cities like Philadelphia etc became very high downtown… I think it was Amazon, they were trying to launch this half an hour model. But they realized they really can’t do [indiscernible] every model until the goods are here. So some of these offices in these old kind of buildings end up becoming like this logistics kind of… 

Reggie: Really? 

Dhruv: … hubs and something of that sort. Exactly. Right. So whether it’s this, whether it’s vehicles coming in, going out, so on and so forth. Now, I think as we become more of a cultured generation… 

Reggie: Cultured generation [snigger] 

Dhruv:… more so, more so…What I used to quite like about it, it’s called the underwear economy because…  

Reggie: Underwear economy!  

Dhruv: Because you’re basically doing everything from home, sitting in your boxers, right? I mean, that’s what last year was for most of us. But as this trend happens more, I feel… and you would have seen this. Ask yourself a simple question: how many orders did you have this month? Was this [indiscernible] you had six months ago delivered to your home, and six months before that? And this trend is just increasing more and more and this will… I think this is like unstoppable, right? I don’t think anyone ever said “oh my god, I can’t wait to go to the departmental store to buy one ice cream”. You know what I mean? I mean, sometimes you do, but that’s like once in a year. So I think that’ll actually accelerate and I feel there’ll be just more need for it. And I feel, and that’s what I’ve always said, I think if certain REITs generally struggle, they will consider moving it to different… if offices can get converted, I think a lot can happen. 

The residential is generally… I’m not that concerned because people are looking for bigger houses and people are not staying anywhere and so on and so forth. 

Reggie: There’s always an easy way out. 

Dhruv: It’s an easy way out and that I think, you will always have demand, right? There’s a lot of people who want to move to Singapore, pushing up at least the condo prices. But at the same time, people want bigger, better houses. Because now they are like “oh, I’m going to be spending more time at home”, which is true. You will be spending like… if you think of it, you’ll be practically spending almost 50% more time. If you think of it, I would say the sleeping time… because you spend that whole extra day, you only spend two days. Now you are spending this third day at home, and sometimes it’s actually more because normally on the weekends, you might go out, but this day you’re normally going to be on your thing. So people want, if they can, they want this one extra room and so on and so forth… so generally not concerned.

If I’m not mistaken, I read somewhere… residential property 2 year high which is like, it’s already surpassed the Pico 11… 

Reggie: It’s already over. 

Dhruv: … and all that, right? 

Reggie: Yeah. 

Dhruv: So… not really concerned but I think logistics as a trend will continue. 

Reggie: Nice, nice. What about data centres? Data centres is also this… always sounds so exciting, but it’s also so complex. 

Dhruv: [indiscernible] Yeah, I mean it’s basically going to be… without getting too technical, I think everything is now moving to the cloud and the cloud essentially is… Think of it rather than your old kind of server rooms that you used to have in offices or big homes etc. Think of it: it’s more like centralized place where these things are kept to optimize rather than your hard disk which is at your home…. think it’s in this massive kind of centre, your systems, your processing power. Rather than happening at home, it’s happening at these centres.

This trend to move towards this kind of cloud-based thing is it’s already in motion… it has already happened. We are 100% on the cloud, right? 

Reggie: Yeah. 

Dhruv: Actually it’s great because it helps companies scale up, scale down very easily. It’s actually very cost-effective until you are very big and even when you are very big, it’s still generally cost-effective because it’s very nimble. You can change with the times and you can do a lot by scaling up and down and moving your cost up and down. When I say scaling up, in a very simple way, if you have 10 CPUs and you need a hundred CPUs, you can do it with a click of a button, right?

Reggie: Yeah, for sure. 

Dhruv: Which otherwise is a very heavy, expensive cost, but it does not make any sense because technology is changing, adapting and all that. So think of it like if you unify the requirements because you might not need a hundred CPUs throughout the day. In the day, you might need it, but at night, somebody else can use it because at night, you know what? There is someone who’s working the night shift in Singapore and vice versa, right? 

Reggie: Yeah. 

Dhruv: So essentially let’s say that those places which will essentially store these massive kind of…

Reggie: Computing. 

Dhruv: … warehouses, computing stuff and… I don’t know, The Matrix kind of examples… 

Reggie: The vibes, right? 

Dhruv: Yeah, the vibes.. Yeah. 

Reggie: But when we look at data centres, I think a lot of people don’t recognize that the data centre ecosystem is highly network-driven in the sense that there are very big players in in the game. 

Dhruv: Yes. 

Reggie: Companies like Equinix, which is huge. They’re everywhere and they do have that kind of scale involved compared to Keppel DC.

Dhruv: Yeah. 

Reggie: Does that matter when we’re looking at data centres? 

Dhruv: Yeah, it’s a good point. The thing is there are very few players of this in Singapore and… 

Reggie: Barely any. 

Dhruv: Barely any. 

Reggie: I think two of them. 

Dhruv: Two of them, right? 

Reggie: Yeah. 

Dhruv: So basically, the thing is as economies evolve, generally there’s a lot of sensitivity around the data remaining onshore as in remaining in the same kind of country. All the things are on Singapore servers, of course like PDPA and safety and other angles and it makes sense. I think we all expect that. The next blow up is not going to be a nuclear one, it’s probably going to be a cyber one and so on and so forth.

So it’s prudent and it’s the right thing to do. I know that the big global players, which really helps, but I feel they will actually work with the local players and they will need to do that rather than it being competing for the same space, especially in places like Singapore, which is just  one or two players, and I feel it will be largely controlled. I don’t expect us to have 20 data REITs, everything coming out right now. 

Reggie: Okay fair, and for all of you who don’t know, Singapore is actually the internet exchange within this region. So the major internet cables are in Hong Kong, Australia and then Singapore. So all your regional internet, all the data, they are all pulled here to the data centres here. 

Dhruv: Yeah. 

Reggie: So there’s a lot of advantage here, but yeah. It’s your choice. You make the decision, so last question for you. Do you think a pure SG REIT portfolio will better perform over time compared to a diversified allocation play? 

Dhruv: It’s a tough one, to be honest, I mean… 

There are a lot of caveats [indiscernible] So I would come back to what we had spoken earlier. If your goal is Singapore dollar, this is… a pure SG REIT is a slightly safer play from that angle. I generally am a fan of a bit of a diversification, but I feel majority of the REITs are diversifying. For me, and again, this is not… I mean, this is not a set in stone number, but I’m saying over all across my portfolio of 20% of the exposure is overseas, I’ll be a bit more comfort… I’m actually completely fine with it. I feel that’s what I require, but I personally would still like a larger amount of focus on Singapore, because this is my SGD passive income portfolio. 

Now, if you really have a view on real estate as a sector, then it’s a different story. But then I would probably go and say, if that is a strong view, then you’re probably better off going to Hong Kong and buying a Link REIT, or getting a US-listed REIT or something of that sort. [indiscernible] trying to force fit it through the SG REIT model, right? 

Reggie: Yes. 

Dhruv: If that’s the view… so my personal bias would be still… heavier focus on keeping it Singapore based? 

Reggie: It’s good, I like it. Clarity as SGD denominated… we don’t want foreign exchange risk because it’s your passive income portfolio. You want to keep it here, not seeking excessive growth relative to other parts of the world where property market is even more interesting, relative to  where it is. Yeah. Thank you. Thanks for sharing. 

Dhruv: Thank you. Thank you so much. 

Reggie: Thank you. Yeah, we’ll have you around. Take care.

Hey, I hope you learnt something useful today and truly appreciate that you took the time off to better your life with The Financial Coconut. Knowledge, it’s that much more powerful and interesting when shared, debated and discussed. Join our community Telegram group, follow us on our socials, sign up for our weekly newsletter. Everything is in the description below. And if you love us, want to help us grow, definitely share the podcast with your friends and on your socials. Also, if you have some interesting thoughts to share or know someone that you want to hear more from, reach out to us through hello@thefinancialcoconut.com. With that, have a great day ahead. Stay tuned next week, and always remember: personal finance can be chill, clear and sustainable for all. 

Okay wait, I have 3 more questions. These are 3 questions we ask every single guest. 

Dhruv: Okay. 

Reggie: Feel free to answer whatever comes to your mind. So number one is: what is one core life principle you hold closely to? 

Dhruv: Can it be a value?

Reggie: Yeah, sure. 

Dhruv: So there’s this old Sanskrit word, which is called karma, which you might have heard of. So… 

Reggie: I’m sure. I’m sure everyone has heard of… 

Dhruv: Everyone heard of? Okay, fair enough.

Reggie: But everybody has a different understanding. I want to hear your view. Yes. 

Dhruv: So very simply put, you reap as you sow, something of that sort. What it basically means is that I think if you do good, good comes around. If you do bad, comes around. I think it all balances out. So the principle is that… I would say do good. Yeah. 

Reggie: Nice, good stuff. Number two is: what is a personal finance advice that you feel needs to be further propagated? 

Dhruv: Saving is good, investing is better. 

Reggie: Nice. Short and sweet, right? Okay. Yeah, after you have capital, you’re going to put it to good use fundamentally. Number three is: which part of your life are you giving additional focus on now? 

Dhruv: I’m trying to read more. I’ve been with all… the growth of the company and we’ve moved to a new office and I have almost 40, 50 people now in Singapore. 

Reggie: I know, dude. 

Dhruv: [laughter] so trying to read more and there’s a lot of problems I think we face in life. At least for me, like setting up a company, building a company. This is a journey that a lot of people have gone through, so having a chance to read more and rather than always learning from mistakes, learning from others’ mistakes is something I’m trying to get better at.

Reggie: Nice, good stuff. Read more, read more. Thank you. Awesome. 

Dhruv: See you around. Cheers.

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