Developers should focus on greening buildings, strengthening supply chains: KPMG’s Tay Hong Beng

Changing industry norms have raised sustainability standards for real estate projects, whilst global developments have forced the industry to reconsider the versatility of its supply chain.

Tay Hong Beng is a Partner and Head of Real Estate at KPMG in Singapore. He has been with the firm for more than 29 years, and in his current role, oversees tax consulting for the real estate sector.

With a speciality in advising on complex tax issues such as structured transactions, he has been a key advisor to several high-profile real estate transactions and tax dispute resolution assignments in Singapore.

Tay is also a member of KPMG’s Global Real Estate Steering Committee. He also sits on KPMG in Singapore’s operations committee, helping to oversee the firm’s strategy and operations. Tay is also a board member of the Singapore Institute of Accredited Tax Professionals. He frequently speaks at tax seminars and has contributed numerous articles and commentaries in the media.

In an interview with Real Estate Asia, Tay shared some insights on how professionals in tax consulting can serve their clients better amidst changing industry standards, such as by understanding the unique characteristics of their client’s goals.

“By keeping abreast of policy changes … consultants will be able to help their clients stay ahead of the curve and find ways to mitigate the impacts of these tax changes,” he said.

Tay also noted the importance of tax consultants possessing a good understanding of cross-border tax amidst the strong international presence of real estate conglomerates, so they can help their clients scale up and remain compliant with tax laws.

He also provided insights on industry trends such as the growing importance of environmental, social, and governance (ESG) considerations in the industry, the focus on improving the quality of urban life, as well as possible risks such as higher inflation rate and continued geopolitical tensions.

How do you think global demands for ESG credentials and sustainability measures affect the real estate industry? How can property managers and landlords be compliant with these demands?

Although ESG factors have been gaining traction for some time, the post-pandemic landscape and recent developments, such as the energy crisis, have accelerated momentum towards sustainability. More consumers and businesses are demanding higher standards when it comes to ESG aspects, which means incorporating sustainability measures into real estate projects is likely to become an industry norm.

The extra emphasis on sustainability can be seen across all aspects of the industry, starting from the top, where regulators are imposing stricter and even mandatory sustainability benchmarks to encourage investors and lenders to finance green companies and projects. Multinational enterprises are also becoming more discerning of the carbon footprint of the properties they occupy and how they run their operations to hit net-zero targets. Similarly, consumers expect the government and developers to create greener spaces to live, work, and play.

To meet these expectations, property managers and landlords will need to take a holistic approach and focus on reducing the building’s entire carbon footprint, rather than just focusing on the number of carbon emissions generated from the building’s daily operations.

As green building designs become more advanced and sophisticated, property developers can leverage technology, such as a digital twin, to trial new green designs for buildings. The technology can also be used to identify gaps in the building design and find ways to incorporate renewable energy use in the infrastructure.

This will go a long way towards reducing the carbon footprint of buildings. Landlords can also tap on grants to retrofit older buildings, such that these buildings will remain in high demand and in line with industry expectations.

With your expertise in the real estate industry, what are some of the trends you have observed in the industry in 2022? How do you think these will play out in the short term?

In a climate with increased scrutiny on generating positive impacts on the environment and society, there has also been stronger advocacy towards improving the quality of city life, especially in gridlocked cities where pollution and congestion can affect residents negatively. Whilst the focus on improving city life was already present before 2020, the COVID-19 pandemic has thrust it into the spotlight again.

Nations around the world are already acting to counter this by changing urban planning regulations and encouraging a more sustainable way of living. An example is the 15-minute city concept in Paris, where the aim is to design neighbourhoods in a way that all key amenities can be easily accessed by bike or foot. Another example closer to home is the 20-Minute Towns and a 45-Minute City (2MT45MC) concept proposed in Singapore’s 2040 Land Transport Master Plan that intends to reduce road congestion and make transport networks seamless.

With the trend of hybrid work blurring the lines between work and play, planners and developers will also have to radically redesign cities to meet these emerging needs. The traditional concept of having a core business district will also need to change. Developers are already trying to incorporate a “home office” in their residential designs and plan for amenities closer to residential areas to cater to those working from home.

A key part of improving urban life is also mitigating the hazardous environmental factors in cities, such as the urban heat island effect that can cause significant discomfort to residents over the long term.

Both governments and the private sector have been thinking of ways to counter the urban heat island effect in Singapore and other regional cities. In addition to the Cooling Singapore 2.0 programme, Singapore has adopted design strategies such as the provision of more open spaces around buildings, creating natural ventilation to reduce reliance on air-conditioning, and the use of rooftop gardens and vertical greenery systems to not only reduce heat absorption but also create additional recreational spaces in the buildings.

Amidst challenges brought by global inflation and geopolitical tensions, what do you think are some of the risks that the industry may face in terms of client service?

With higher inflation and central banks raising rates to keep rising prices in check, property developers face the risk of higher financing costs for real estate projects. Continued geopolitical tensions will also mean higher operating costs for developers as fuel prices rise. To add to the challenges, high-interest rates can also dampen demand and interest from buyers and institutional investors.

Geopolitical tensions and the deglobalisation of economies are also threats to the industry, as these can cause significant disruption to supply chains. As the industry is asset-intensive, the adaptability of supply chains will play a key role in the success of real estate projects. These global developments have forced the industry to reconsider the security of its supply chains and led to the concept of “friend-shoring,” a strategy of choosing to manufacture or procure from countries with similar geopolitical views or values. Ongoing trade regulations and tariff wars will also demand greater agility in supply chain management in response to these logistical challenges and political considerations.

Whilst these are short-term challenges that have emerged from recent events, businesses that have the ability to seize the initiative and transform their logistic systems will be in good stead to manage these issues in the future, reduce downtime should another incident occur, and stand out in terms of quality and service.

What advice can you give to those who wish to succeed in the field of tax consulting for the real estate industry?

My advice would be for tax consultants to understand the unique characteristics of their clients’ businesses and help them find ways to mitigate the impacts of these new developments. By keeping abreast of policy changes, such as Base Erosion and Profit Shifting (BEPS) which will have a significant impact on multinational enterprises, consultants will be able to help their clients stay ahead of the curve and find ways to mitigate the impacts of these tax changes. Consultants can also assist clients to obtain the appropriate grants and incentives to get -the appropriate level of cash support, especially in a volatile and uncertain market.

Real estate conglomerates typically have a significant overseas presence, so it is also important for tax consultants to have a good understanding of cross-border tax. In this way, consultants can help their clients scale and internationalise, and at the same time remain compliant with tax laws whilst still having an edge.

As part of this year’s judges panel, what characteristics should the winning entries have?

As with previous years, the winning entries this year will be the ones that can provide a superior user experience through the use of environmentally friendly designs, have innovative features, and display a judicious use of technology.