Interview: Trihatma Haliman
What is identified as areas of opportunity?
TRIHATMA HALIMAN: Indonesia is currently experiencing one of its largest real estate booms in years. Foreign and local businesses continue to expand their operations, and a steadily increasing income per capita is driving demand for low- to middle-income residential properties. Indonesia still has a very low mortgage-to-GDP ratio, which, when combined with the fact that banks are offering their lowest mortgage rates in the history of the country, represents a huge opportunity for significant growth for the foreseeable future. Additionally, as disposable income has increased, demand within the retail sector has provided ample investment opportunities for mall development. When you take all of these factors into consideration, plus the country’s strong macro-economic fundamentals, it is apparent that this is an opportune time for developers to capitalise. This is part of the reason that we decided to have our initial public offering in 2010. It was our goal to free up capital to expedite the delivery of existing and new projects. These days, the faster that a developer brings product to the market, the more likely he is to maximise returns.
While financial success is important, we as an industry must also recognise that the country currently faces a shortage of more than 13m affordable homes. While the government has tried to address this issue through implementing a number of programmes, the private sector has a moral responsibility to contribute to these efforts, despite the relatively low profit margins. Developers have the expertise to provide residential units which will promote healthy and safe living.
Will real estate investment trusts (REITs) become a viable option for developers to raise capital?
TRIHATMA: During this economic resurgence, many developers are considering the use of REITs to raise capital and fuel their expansion. The use of this financial instrument is appealing to investors and developers alike, and the market for the product has flourished in coun-Indonesia the regulatory framework has not supported its development. There are still many legislative issues surrounding taxation, and the legal structure is extremely complicated. This has not encouraged our industry to use REITs as a means of raising capital.
Additionally, the yields generated on such instruments – about 7-9% – might be attractive in Singapore, but in a country where the central bank’s short-term debt pays at least 6 or 7%, there is not much demand from investors. I expect that until there is an overhaul of the regulations governing REITs, most developers that want to utilise REITs will most likely do so by listing their product on the Singapore exchange.
How would you respond to concerns that an oversupply of retail space is on the horizon?
TRIHATMA: The growth of the middle class has been so rapid that the industry has barely been able to keep pace in terms of the supply of retail space. Occupancy rates in all of our malls remain extremely high, and the situation is the same for many other developers across Java. Furthermore, despite the amount of supply that is expected to be delivered over the next couple of years, this additional space will also easily be absorbed. In short, there is no danger of an oversupply, especially with the mall moratorium in Jakarta until 2012.
If a mall is underperforming, it is an issue related to management or concept, but certainly not demand. At present, the retail industry is extremely lucrative, and we have seen a surge in the number of retailers that are either entering the market for the first time or aggressively expanding their existing operations. These retailers, such as Lotte, Carrefour, Mitra Adiperkasa and Matahari, are doing so not only in the major city centres, but also in second-tier markets where growth is even more substantial. These markets represent an immense opportunity for developers and retailers, and it is imperative to maintain strong mutual relationships so that both parties can effectively develop together.
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