Interview: Shirley Tan
What potential does Indonesia offer to both domestic and foreign investors, and which cities or provinces in Indonesia offer the biggest potential?
SHIRLEY TAN: Indonesia has a large economy, and the tourism industry is multiplying particularly quickly, especially in Bali and Jakarta. Despite the sector’s merits, foreign direct investment in real estate and tourism remains in its early stages, unlike that in more mature markets, which reach a large number of investment transactions. Furthermore, asset ownership is largely concentrated in the hands of a small number of major players, which makes it challenging for smaller companies to compete. In Indonesia foreign investors will always require local partners to secure a permit. For foreign players, capitalising on Indonesia’s potential is more about who they invest in than where.
The government’s 10 New Balis programme aims to identify new destinations with the potential to become the world’s best and determine the type of infrastructure needed to achieve this transformation. Although the majority of the developments are public-led, securing land lease rights poses a major challenge to real estate investors. One way to overcome this is through a private sector consortium, which will ensure the resort is profitable and encourage other players to follow this example. Lastly, another challenge that requires improvements to infrastructure is ensuring that the resort is accessible by air travel.
How are digital travel platforms influencing investment decisions related to tourism real estate assets, and how does this differ by source market?
TAN: Developers must consider the fact that travel bookings are becoming more dominated by the millennial generation. Around 60-80% of this demographic choose to book online. In Indonesia tourism is a digital domain. The influence of digital travel platforms primarily concerns decisions around distribution, rather than investment. It is difficult to compare these by country; in the past, source markets such as China, the US or Europe used to be dominated by travel agents, while distribution figures for each source market are now analysed in a different manner.
How do you evaluate the state of human capital development in Indonesia’s hospitality sector?
TAN: While the quality of training programmes at vocational schools in Indonesia cannot compare to, for example, the Swiss Hotel School, the sector is not experiencing any difficulties in terms of recruitment, and luxury brands in Indonesia have strong internal training programmes in place.
Travel attitudes have been changing and it is important that the hospitality sector can keep up with this. In Europe, for example, the demand has shifted from refined service to authenticity. If we look to other countries in the region, China is renowned for a high turnover in hospitality. To minimise turnover in Indonesia, we should make sure to provide employees with a steady income by including service charge and offering the potential for career progression.
What is your medium-term performance outlook for international and domestic tourism?
TAN: Indonesia boasts both popular destinations and unexplored areas that appeal to domestic tourists. This, combined with high standards of customer service and garment offerings, will contribute to the stable growth of the sector. Regarding domestic tourism, Indonesians generally spend a lot more than they save. Different travel destinations will develop along different pathways. The growth of Belitung and Lake Toba, for example, may initially driven by demand from domestic and regional tourists. Waste management and plastic pollution are two of the long-term challenges that have emerged as a result of mass tourism. The degree of sustainability and maintenance required to combat this issue varies by specific location.
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