Episode 7: A Former Fund Manager’s Take On Direct Real Estate Investing

    In this episode, we are joined by our investor, Pearly Yap, former lead portfolio manager at EastSpring Investments, who managed about USD4bn in Asia-Pacific equities and specialises in the real estate sector.

    Episode 7: A Former Fund Manager’s Take On Direct Real Estate Investing
    Time Stamp Topic Reference
    0:00 Introduction
    0:41 How Does Investing with RealVantage compare with Investing in Physical Property
    3:44 How is Investing with RealVantage Different from Investing in a Public-Listed REIT
    5:31 What to Look for Before Making an Investment
    6:54 Which Segment or Geographic Locale to Invest In
    8:25 How do you Mitigate Inflation and Macroeconomic Risks
    10:25 Outro


    You're listening to the RealVantage podcast. The show that provides investors a better viewpoint into the real estate market with your host, Victoria Au.

    Hi everyone. I'm Victoria Au. I am the director of business development here at RealVantage. So welcome to the RealVantage podcast show. Today I'm joined by Pearly Yap who is an experienced personal investor and an ex-professional fund manager who specialises in Asia Pacific Equities and the property sector. So, thank you for being on the show with us today, Pearly.

    Thank you for inviting me.

    Yeah. So glad to have her join and to shed more light on this particular asset class. So why do you particularly invest in physical direct property?

    It allows me to have greater diversification and selection beyond Singapore shores. I think in the past, I should mention that, in the past, if you want to invest beyond Singapore the investments tend to be quite lumpy. You need to buy an entire asset like an entire physical residential property and so it tends to be quite lumpy.

    I think the advantage that RealVantage as a platform and many of these property platforms have is that you have the ability to invest in smaller ticket sizes and with smaller ticket sizes, it will allow you definitely more diversification, in terms of the countries that you want exposure to, the asset classes that you want exposure to, as well as the different stages of property investing that you may want exposure to. Maybe perhaps I should expound on the different stages of property investing. I think one should look at property investing not only in terms of, the buy and hold strategy, which is quite familiar to many investors, especially investors that own residential property or who invest in the REIT market. I think; private investments will allow you to access the earlier stages of property investing, meaning the development stage, and perhaps even the middle stage. Which is like an asset enhancement stage.

    Why does one prefer some of these stages? I suppose these earlier stages will give the investor a higher return for their investments, as you can observe with RealVantage in some of their projects. Some of the IRRs that are projected for these investments in developments can run in the double-digit returns. So, you get access to the double-digit returns for these earlier stages. Of course, you should be aware that, there's no higher reward without higher risk. Earlier stages do have higher risk, and you would have to put your capital in for a longer period of time, be committed for a longer period of time and , there will be also, to some extent the risk that some of these returns may not be achieved.

    But as I said, because it allows diversification with smaller ticket sizes, that diversification should help you overall to achieve that higher returns without much higher risk.

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    Right, right and I think the next natural question that I generally get asked…I think would be, how is this different from a public listed REIT?

    Public listed REITs, as the name implies, is that they are listed in the stock market. So I would say, the advantage of that would be that, you can go in and out, buy and sell REITs according to what you think the fair value of the company is. You have access to access to the markets and liquidity. So you can get in and get out any time very easily. And it's also very small ticket sizes as well and in a way, public REITS does allow you to own, a small segment, a fraction of a class of assets, but often like in Singapore public listed REITS give you access to Singapore properties in the various asset classes. And there are many professional fund managers that are running these suites as well that you can benefit from.

    But with a private investing, as I said, you do get much bigger diversification across the property investing cycle, which you don't get in REITs. REITs tends to be in the buy and hold space or in a very, very small portion in the development space, because there are limitations in the regulation on having a big portion in developments. So at least in the private space, you do get the different stages. And also, you do get, a selection of different asset classes as well, a much broader selection of different locales and asset classes in the private space.

    Right. So, what do you look at when you're selecting a new investment with regards to direct property investments?

    I think understanding that the manager has skin in the game is also quite important. I think what I like about RealVantage as that they do have skin in the game by committing capital to their various projects, and also… fee structures that align to, the profits of the project. So there is skin in the game and an aligned interest. I think that's very important. And the other thing that investors should be also aware of is that you don't wanna go into, some of these public platforms that you go into…some of them may promise you very high returns, but not completely explain to you the risks involved. I think you need to understand that higher returns come with higher risk and having access to the manager… RealVantage does have webinars, which I think does draw a lot of, increase the trust of the investor. You have access to these managers, and you can ask questions.

    So, do… attend before you invest do attend these webinars and ask these questions and the questions as I said that you particularly want to ask is about the credibility of the manager, the fee structure of the projects in particular.

    So, for yourself, would you have any advice on where to invest…, with regards to a segment or geographical locale?

    I tend to prefer the developed markets to the developing markets. I think we developed markets. At least… you do have…proper laws… with respect to our ownership laws, there is better legality and better due process. I think with developing markets as well have, you might be... you might earn a lot of money from the project, but that might be washed away with currency depreciation as well.

    So I think it's a lot easier to look at developed markets. Also, in developed markets, you do have a bigger pool of assets that are traded in the private markets. So, any time when the project is developed, there is a pool of investors that you can sell to. So, there is what you would call, liquidity in the market as well. I suppose, at the end of the day, you want to look at the general economic conditions of the country, of…particular locale.

    Simplistically, urban settings where population is growing…there is, good job growth, good income levels... rising income levels, a young population. All these help in the economics of the particular asset class.

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    Ok, so at this juncture, is there anything that concerns you, perhaps… the macroeconomic conditions?

    I think, it’s all over in the press already…in terms of the high inflationary environment we are living in and rising interest rates… so I guess in any project that you look at, you should be very well aware of the funding structure of the projects, ensure that, these managers are.... do not project very very low-interest rates for very very long periods of time because that is unrealistic.

    You want to be aware that if interest rates are rising, that means that their funding costs are also rising and do interview them about how they are going to structure that and project that. And that should also be in their, IRR projections. The other thing is that with property investments, they are long-duration assets. They, you are holding these assets for a longer period of time. So, you wanna have confidence, that these assets are durable.

    Right. So, meaning that you don’t wanna have very…, perhaps you wanna look at assets where the rental leases…there is a big group of people who will…, companies or individuals who are keen to rent…there is good demand for the particular asset class, and that these leases can be tied up for longer periods of time so you can have some security. I think in every business cycle, certain asset classes are suitable and in every locale, understand the demand and supply dynamics. If there is good demand, the assets tend to have… to hold value much better.

    Alright yeah, thank you so much for,…sharing more and think it was a really informative discussion, specifically focused on direct property. So, thanks for coming on the show. I look forward to having further conversations with you, Pearly.

    Thank you, Victoria.

    Alright, so thank you all for listening in and I’ll catch you on the next one. Alright, bye!

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