Ketut Budi Wijaya, President Director, Lippo Karawaci: Interview

Interview: Ketut Budi Wijaya

What segments of the real estate market do you see as significant areas of opportunity?

KETI BUDI WIJAYA: There will be major opportunities in real estate for the middle and upper-middle market, backed by the recent growth of the middle class. The market is still not that large, but it will grow sharply once this segment reaches a certain level of income. I was positively surprised when I heard President Susilo Bambang Yudhoyono comment that annual income per capita is approaching $4000. The potential is thus remarkable, and whether we can tap it or not will very much depend on how actively developers are capitalising on market trends. There are many secondary cities that are now growing faster than the capital, and the distribution of wealth across the regions is improving. In the past, Jakarta accounted for around 70-80% of economic activity in the country, but has now fallen to only around 40-45%. The remaining activity is distributed throughout the different regions. The real estate sector is also positively effected by the current decentralisation and greater state of autonomy enjoyed by the regions.

In terms of opportunities outside Jakarta, what are your current regional areas of focus?

WIJAYA: Java of course is still quite advanced compared to the other islands as it accounts for more than half of Indonesia’s population. I expect this island to be the geographic focus of our investments during the next three to five years, as it will remain the leader in terms of total new developments and revenues.

Outside Java, we are experiencing a change in the lifestyles of the population. The commodity boom and the subsequent growing per capita income are encouraging regional residents to copy the “Java way of life”. This means giving a more important role to secondary needs, once primary needs have been secured.

In addition to a change in the lifestyle, real estate growth in the region is also driven by infrastructure development. Infrastructure projects like the toll road from Lampung to Aceh in Sumatra, which will require a total investment of around $30bn, will boost every city along the route and will create significant new opportunities for real estate developments.

How can regulations support the construction of greenfield urban developments, and to what extent has demand for green buildings become integrated into the construction process?

WIJAYA: Greenfield projects need significant commitment from developers in terms of capital, resources and time. This type of construction is also risky, as it may encounter difficulties when trying to meet official government standards. Therefore, we need large support from the government, especially for key infrastructure such as electricity, clean water, access roads and, last but not least, licences and permits.

The increase in the number of green developments ultimately depends on the government’s willingness to encourage developers to pursue this type of construction. An initial step needed for green construction to flourish is the establishment of a set of guidelines, approved by the government, that the private sector can follow. Ultimately, green construction increases the cost of new projects, so unless private developers are incentivised or forced to do it, it will be difficult to see a real boom in this type of construction.

To what extent do opportunities exist for the industry to grow through international partnerships?

WIJAYA: Players in the real estate sector are definitely open to such collaborations. Property development is a capital-intensive industry and recent changes in the property market will encourage international partnerships and joint ventures. Prices and margins have improved significantly in recent years and this opens opportunities for international investors to join the Indonesian market. Local companies provide knowledge on regulations, regional markets and labour, while foreign partners can enhance product development, funding and best practices in property management.