Monday, June 16, 2008

Lippo: 'Back to the City' migration needs infrastructure support

The Jakarta Post

Lippo Group, founded by Mochtar Riady, is one of the largest property empires in Indonesia. It has grown into an important development player in Southeast Asia, and is famous locally for its construction of various satellite cities and independent community developments, including Lippo Karawaci, west of Jakarta.

Abiding by the old saying, "the apple doesn't fall far from the tree," Mochtar's first grand son, Michael, is already upholding the family's reputation in the business. The 28-year-old chairing director of PT Lippo Karawaci is leading a project to craft The St. Moritz Penthouse and Residences, a multi-billion-dollar project to establish a new business district in Puri Kembangan, West Jakarta. Michael says the project will be a blast in the future and will help people cut commuting time. He spoke to The Jakarta Post's Adisti Sukma Sawitri and Riyadi Suparno to discuss his vision of the property business and the shifting living trend in Greater Jakarta.

What exactly is The St. Moritz?

We are building 17 buildings that will provide 11 centers in one area, including office buildings, apartments, schools, a hotel, a hospital and a mall. The office building has 65 floors and will be the tallest in Indonesia.

The 135-hectare land plot is designed to be a self-sustaining business district with a block concept so that everybody can walk from one building to another.

We also want the new business district to be a global city, competing not with other developers, but with other cities in Southeast Asia.

We have a competitive advantage; property prices in Jakarta are among the cheapest in the world. According to Global Property Guide 2008, the average apartment price in Jakarta is US$1,068 per square meter while in Manila it is $1,969. In Kuala Lumpur, it's $1,400.

We still have the chance to compete with other cities in Asia if we offer good quality. That's why we need to build the biggest, the tallest, the best.

Why did you pick a location in West Jakarta for the mega project?

Jakarta has been developing from the north to the south for decades. The south has become a mature area. West and East Jakarta are the growth corridors of the future.

Now Semanggi and Sudirman (business districts) may seem to be better locations, but we have seen that these areas have been suffering floods and unbearable traffic congestion. It only has toll roads to Cawang and Pluit.

Meanwhile, employees working in the business districts live in suburban areas like Depok or Tangerang. People have to waste a lot of time and energy to reach those areas.

We have seen several oil companies that have moved their offices to Simatupang (a street in Jakarta's southern outskirts) since their employees live in Cilandak or other suburban areas in the south. The employees are still fresh when reaching the offices as they don't have to sit in two-hour traffic.

In the future, our new business district will also look better as it is closer to the airport. All growing districts in developed countries are always close to airports. People could easily access the airport for business travel and vacation.

In Shanghai, business districts first pooled in Puxi. Now they have moved to Pudong (district), closer to the airport.

Another good thing is that we are located in the intersection near toll roads (the western section of the Jakarta Outer Ring Road) and the airport toll road. These toll roads can take people in four different directions in the city. The toll road is expected to be finished in 2010, while the first phase of our project is scheduled to be completed by 2011.

What is the target market for apartments given the over supply problems?

I don't think we have oversupply problems. In terms of location, West Jakarta is not oversupplied with apartments, while in terms of products we are aiming for high-end users who could live there with families.

Currently, the market is oversupplied with small apartments, usually less than 70 square meters with one bedroom. This kind of apartment is usually for investors or single people.

We try to capture the demand for bigger apartments. We provide units from 88 to 270 square meters. The smallest has two bedrooms, while the largest has five. The unit prices range from US$90,000 to $300,000.

Do you also expect people living in houses to shift to the apartments?

Yes, we hope those living in 100 to 200 square-meter multi-story houses, and who are tired of floods and live far from the city will look to our products. Senior residents whose children have started to live on their own may also look for smaller but comfortable places like these apartments.

With the worsening traffic congestion, has "back to the city" become the trend in Jakarta?

The city and its neighboring regions have been occupied with sprawling infrastructure, forcing housing areas far away from the offices. As the distances between the two increase, so does travel time and energy requirements.

The toll roads the government is constructing will not solve congestion as they will merely encourage people to travel more. In the future, people will invest more in properties in integrated commercial and residential areas to avoid traffic.

But still, this "back to the city" concept must be supported with infrastructure like toll roads, to make it easier to get to a lot of places. We can't solve congestion, but we can improve it by building residential areas near toll roads.

Has demand for apartments shifted the demand for multi-story houses in Jakarta's suburbs?

Demand for houses and apartments will always be there as these are basic necessities, but there is a high chance that people will migrate to apartments.

If we look at other big cities like New York, we are on exactly the same path. People started with houses. As land prices got higher and availability decreased, high-rises began sprouting and people started living in apartments.

We are in the early stage of that process. One day, more people will look toward apartments and we can provide them with nice ones. From our study, a standard apartment should be no smaller than 80 square meters.