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New players looking to diversify into property
Competition in the countryâs property market has been getting tighter with the entry of new players as more listed companies operating in sluggish sectors look to diversify their businesses
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ompetition in the country's property market has been getting tighter with the entry of new players as more listed companies operating in sluggish sectors look to diversify their businesses.
From construction to mining, companies are trying their luck at developing their own property businesses, motivated by the lucrative profits offered by the sector, analysts say.
Most of the property debutantes are state-owned enterprises that are attempting to comply with minister Dahlan Iskan's instructions to optimize their idle assets.
Most newcomers come from the construction sector ' such as PT Pembangunan Perumahan and Wijaya Karya (Wika), both of which plan to have their property units go public soon ' perhaps not surprisingly given their core businesses are already related to property.
Others players, however, come from more unrelated backgrounds.
To name a few, there is cement giant Semen Indonesia, miners Bukit Asam and Timah, telecommunications firm Telkom and toll-road operator Jasa Marga.
Semen Indonesia, for instance, is planning to set up a subsidiary focusing on property that will develop a 200-hectare plot of land into a township in Gresik, East Java, as its first project.
Semen Indonesia has plans to disburse up to Rp 200 billion (US$16.7 million) to set up its property unit, which will begin operations before the end of the year.
'Our core business will always be in the cement industry; we don't want to be seen as a company that is not focused on running its business,' Semen Indonesia corporate secretary Agung Wiharto said over the weekend.
'However, rather than leaving our assets idle, we see the property business as a good choice to generate added value. Moreover, we will not be alone in running the business,' he went on.
Semen Indonesia will develop a satellite city ' which will include residential areas, apartments, commercial buildings, logistics, schools and a port ' with the help of 'more experienced players' in the Gresik project.
Wika is among the companies that Semen Indonesia is considering forming joint ventures with.
- Companies in sluggish sectors move to expand into thriving property
- Timah to cooperate with Wika, Adhi Karya to develop residential area in Bekasi
- Semen Indonesia to build township in Gresik in joint venture
The state-owned firms inked a memorandum of understanding (MoU) last month to begin a partnership in the energy, realty and property sectors.
Tin producer Timah is also set to establish its own property unit, which is expected to begin operations later this quarter, after readying around Rp 5 billion for its initial capital.
Timah will cooperate with Wika and Adhi Karya to develop 176 hectares of land in Bekasi, West Java, into a residential area.
Telecommunications operator Telkom also plans to expand its portfolio by investing up to Rp 1.1 trillion, or about 5 percent of its total capital expenditure, on a property project that will utilize 2 million square meters of its idle land for commercial-property use, according to media reports.
Diversified conglomerate Astra International made its move into the business late last year, pouring in $600 billion to finance an office tower in Jakarta's commercial hub in cooperation with Hong Kong Land.
MNC Securities analyst Reza Nugraha said that it was only normal that more firms were looking into the property business because despite a slowdown in the sector, housing needs increased every year.
'Indonesia needs around 10 to 15 million new houses every year, and that makes property a die-hard business,' Reza said.
'For a start-up firm, the property sector offers 25 to 30 percent profit margins, and far higher for those well-established developers. This is in stark contrast compared to other sectors ' such as construction, which offer only 4 to 8 percent profit margins,' he explained.
Reza, however, warned that the plan to move into the property sector might backfire for these firms, unless they were backed by more experienced players, as even some established developers were currently struggling with plunging profits, dogged by mortgage regulations as well as unfavorable macroeconomic conditions.
In the Indonesian Stock Exchange (IDX), property is the highest-growing sector year-to-date, having soared by about 37 percent, far above the Jakarta Composite Index (JCI) that rose by 22 percent from January.
