VIVAnews – In 2009, the real-estate business will only suffer some minor setbacks. Today, major real estate players are still competing and completing their various skyscraper projects, both residential and commercial real estate.
Nearly all areas of Jakarta have already been divided among major real estate companies. For instance, the Agung Podomoro Group develops the Tanjung Duren area, the Lippo Group owns a substantial area in West Jakarta, the Bakrie Group in Kuningan, and the Djarum Group in the circle area around Hotel Indonesia. Despite global recession, major real estate companies are still competing and completing their prestigious projects.
To get an insight on the prospect of real estate industry in Jakarta, especially super-blocks, apartments, and business centers, VIVAnews journalist, Elly Setyorini, interviewed Michael Riady, one of the highest rankings executive at the Lippo Group.
Riady currently handles a prestigious real estate project in West Jakarta, The St Moritz Penthouses and Residence worth Rp 11 trillion (US$915.7 million). Despite being only 28 years of age, he is already known for having great talents in managing a real estate business. Here are the excerpts of the interview:
What is your prediction for the property market in 2009?
Our economy is expected to recover in the second semester of 2009. Oil and commodity prices will go down, BI (Bank Indonesia) rate is expected to fall too, and the cost of fund will be cheaper. Hopefully, all of these factors will boost the real estate industry in 2009. However, please keep in mind that it is the United States and the European countries whose economies are most affected by the current financial crisis, not Asian countries or Indonesia. This means that when the crisis is over, Indonesia will be among the first to recover from the crisis. After all, compared to the 1997 crisis, Indonesia is currently more prepared.
Does this mean that the real estate prospect in 2009 will be better?
The prospect (for real estate) is still quite good. After all, Indonesia has a population of 230 million. If we assume that each family has 4 members, then there are around 60 million families in Indonesia, and most of them do not own property. This means that demand for housing is still huge. The situation in the United States is quite different. In the US, each family has their own property. Some even own more than one house.
Are there positive sentiments that will drive the real estate market?
The oil price has already gone down. This definitely has substantial impact and the transportation cost will drop sharply. Generally, these would bring in positive sentiments to the government too, since the inflation rate will also be lower, and the people’s purchasing power will increase. The BI rate is expected to slide too and this in turn will boost demand for property.
How about our government’s policy?
As we know, it still takes a lot of time to obtain a business license in Indonesia. Same thing happens when we want to acquire land for a project. On the other hand, it is equally important for us to have regulations that allow foreigners to buy (property) in Indonesia. These are just parts of the challenge. If the government allows foreigners to buy property in Indonesia, then apartment growth will be much higher.
What are the challenges in the real estate business this year?
We will still feel the impact of the global crisis. As a result, customers tend to wait and see. They still have their money and savings, but since the business volume has declined due to the global crisis, then they decide to wait and see. Nevertheless, they are still interested in the project. For instance, many people take a brochure and ask questions about the St Moritz project. We are confident that when the crisis is over, they will return to us.
Is this the key reason why many real estate companies are continuing their apartment and commercial projects in 2009?
Correct. For instance, apartment projects are currently blooming in Indonesia and the competition is tough, since most of the players are giant companies.
How about commercial projects?
Commercial property has good prospects too. Do not forget that the price of office building is still quite cheap. The problem is commercial property does not depend solely on domestic market. They depend heavily on foreign direct investment (FDI). If the FDI is low, then the number of foreigners who come to Indonesia will also decrease, and as a result, office space consumption will also decline.
What is the proportion of foreign consumption for office space?
I do not have an exact number. However, FDI in Indonesia is currently lower than domestic investment. FDI funds enter our country either through capital market or real sector. The problem is FDI is currently dominated by stock exchange investors, whereas it is the real sector that generates employment and demand for office space.
Does this mean that the office growth will be lower?
There is still room for growth in foreign property market. However, it all depends on how much the government could boost the FDI and attract foreign investment. Perhaps we could offer incentive. It is similar to the hotel industry which is equally dependent upon the amount of incoming FDI.
What should we do to anticipate this ever-increasing competition in the real estate business?
In my opinion, real estate companies should develop apartments that are well ahead of what is currently available, in terms of concept, design, products and services. This applies to super-block construction.
What does this mean?
First, we must come up with a different concept from our rivals who develop similar mega super-block projects. For instance, St. Moritz limits its apartment supply to only one thousand units for six towers. Other projects usually offer more apartments, around 5 thousands or even more. Therefore, in term of supply, we only provide one-tenth compared to our competitors. This means that our customers will feel more comfortable since they won’t have to live in a crowded place like those who live in much larger apartment blocks.
Does this concept offer a better yield for the investor?
From the investor’s point of view, the value of their investment depends on supply and demand. If there is plenty of supply then automatically the price is unlikely to go up. Therefore, real estate companies need to limit their offering to boost the demand and increase the value of their product. Secondly, how can we offer an apartment with 11 facilities, for example? This is different from other apartments which usually only offer three or five facilities. The point is, try to offer units as low as you can, but provide as many facilities as you can.
Can this concept encourage people to live in apartments?
Generally, people prefer to live in an apartment because they are interested in the facilities provided. If the facility is not too good, then the apartment has no value at all. In fact, its value will decrease. On the other hand, if you buy some land and construct a house on it, its value will increase each year. The value of apartment, in contrary, will be lost within five years. Its value added lies in its facilities.
Where do you get the inspiration for this concept?
Actually, it doesn’t come from inspiration; instead I came across them through research and experience. The main key in business is focus on customers. It takes a lot of time to recognize the market.
How did you get involved in the real estate business?
I gained an interest in the real estate business while I was still in college. Back then, I was a subscriber of Forbes magazine. Each year the magazine issues “The World Richest Man” or “How to Become a Billionaire” editions. There is a section in the article that makes me curious: the business background of these 200 world’s richest men. It turns out that most of them started out in the real estate industry. Almost 60 percent of them. Many others own business or technology that supports the real estate business. Thus real estate is the favorite way for the richest people to gain wealth.
Is this the reason why you prefer real estate business from any other businesses?
I feel like I’m on the right track. When I returned to Indonesia, I handled a small scale real estate project. Gradually, through experience, I decided to take the business more seriously.
Translated by: Edwin Solahuddin
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