Big data is becoming an important part of the real estate business for Singapore’s GIC Private Limited, formerly known as the Government of Singapore Investment Corporation. Big data is “pervading all aspects of our business,” said Goh Kok Huat, chief operating officer and former head of real estate at GIC, the sovereign wealth fund that manages Singapore’s foreign reserves. He was interviewed at the ULI Asia Pacific Summit by Patrick L. Phillips, ULI global chief executive officer.
Goh no longer has day-to-day responsibility for GIC’s real estate business but still sits on a number of boards and takes a keen interest in the sector, he said. “I love hearing about how developers are building energizing spaces!”
GIC does not release data on assets under management, but the Sovereign Wealth Center estimates its total assets under management at $354 billion, with 7 percent currently invested in real estate. The target allocation for real estate is 9 to 13 percent, Goh said, and half the company’s property portfolio is in the Asia Pacific region, with the rest split evenly between Europe and the Americas.
Big data and technology in general affect GIC in three ways—in the logistics of running the business, in its investment strategy, and in asset management, he said.
Goh noted how technology affects day-to-day operations. “Today, you need to think about how you can use technology for the long term in your organization,” he said. “Something that inhibits this is that groups within larger organizations tend to get ‘siloed.’ But you need to make them work together, make those separate bits talk to each other.”
GIC is in a good position to evaluate technology for its real estate business because it is also an investor in technology companies through its venture capital arm. The venture capital business also offers a lesson about the skills real estate staff members need to build.
“We noticed that the most valuable people in venture capital are those that also understand technology, and [we] believe you can argue the same for real estate,” he said. “However, overall, the real estate business is behind the rest of the world when it comes to technology.”
One aspect of real estate where technology is going to have an interesting impact is design, Goh said. Advances in design software and the use of virtual reality will make it easier to test designs and underwrite development projects.
Artificial intelligence and machine learning will become an important factor in building design and asset management, he said. “It will change the landscape.”
Asked whether the algorithms and quantitative techniques applied to other asset classes could be applied to real estate, Goh said, “Absolutely. I think real estate is no different. The key is data. Once you have big data for all aspects of building performance, you can use quantitative analysis.”
Technology is going to have a disruptive effect on the real estate business, Goh predicted. “We have met a lot of startups who are working on technological solutions to make the illiquid process of transacting real estate more liquid. We also see a lot of new data that can be applied to real estate investments, different from the market data that CBRE or JLL produces,” he said.
“For example, there is software which analyses hotel performance by looking at how and when hotel rooms are discounted online.” He joked that with new data sources and potentially new ways to trade real estate, brokers would have to be on their toes to avoid disintermediation.
“The keys to successful applications of technology are latency and efficiency, which lead to super-normal profits,” he said. “Apps like Uber and Airbnb exploited latent demand and provided an efficient platform to satisfy that demand.”
Goh also said data will make markets more transparent, which will be a challenge for investors looking to add value. “We are making money by exploiting inefficiencies,” he said. “However, more and better data will remove those inefficiencies.”
In the retail sector, for example, technology will lead to an increasing polarization of value between the dominant malls and nondiscretionary neighborhood retail. “The dominant centers will win, the neighborhood centers will win, and those in between will suffer,” he said.
Phillips suggested that the lack of overdevelopment that characterizes the current real estate cycle might be attributable to better information. Goh agreed that this was likely a factor.
Two changes that will affect the office sector are driverless cars and the desires of millennials, Goh said. Because the effect of autonomous vehicles has yet to be fully understood and the impact of millennials on markets is ongoing, adaptability is now a key aspect of the built environment. “We increasingly factor adaptability into our investment underwriting,” he said.
However, Goh argued that new developments in technology will not fundamentally change the value of the best real estate. “The prime source of value of real estate is in the scarcity of land,” he said. “The value of key gateway cities is not likely to fall over time. People want to live and work in these major cities, and most of them have rising populations due to inward migration.”