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Lippo Taps Demand in Indonesia’s Smaller Cities: Southeast Asia

PT Lippo Karawaci, Indonesia’s largest publicly traded real estate developer by assets, plans to build more shopping malls and hospitals in cities beyond Jakarta to capitalize on an expanding middle class.

Lippo will build about half of the 15 new malls it plans to complete by 2015 in cities such as Semarang in north Java, Denpasar in Bali and Manado in north Sulawesi province, President Director Ketut Budi Wijaya said in a phone interview. Lippo will also open new hospitals in Surabaya, Indonesia’s second-largest city, Semarang, and Kalimantan, he said.

“Some of these cities will see growth rates higher than Jakarta, and that will lead to urbanization,” Wijaya said yesterday from the capital. “Middle-class growth is high and they’re looking for a better service of health care. Health care is the most under-invested industry in Indonesia.”

Developers are targeting the spending power of a growing middle class amid economic growth that’s expected to average 6.4 percent from 2013 to 2017, according to the Organization for Economic Cooperation and Development. Lippo’s hospitals division could account for 40 percent of revenue from about a third now, Wijaya said without providing a time frame.

Retail sales have increased 12.5 percent to 135 trillion rupiah ($14 billion) this year from 2011, Hasan Pamudji, Jakarta-based senior research manager at property broker Knight Frank LLP, said in an e-mail, citing figures from the Association of Indonesian Retailers.

“Purchasing power in Indonesia is very strong, and retailers, particularly foreign ones, keep coming in and trying to grab a share of the pie,” Pamudji said in a telephone interview. “That’s why you see retail centers mushrooming right now, not just in Jakarta, but also in the second-tier cities, particularly in the east.”

Tourism, Offices

Accor SA, Europe’s biggest hotel operator, plans to locate half of its new Southeast Asia properties in Indonesia. The Paris-based company plans to increase the number of its hotels in the region to more than 200, from 132, Robert Murray, chief operating officer for Accor’s northeast and Southeast Asian operations, said in an interview Dec. 7. The group’s hotels in Indonesia, which include 16 Novotels and 11 Mercures, will increase to 94 from 55 now, he said.

Growth in the country’s tourism market is also spurring airlines to expand. Indonesian carrier PT Lion Mentari Airlines is considering purchasing additional aircraft from Airbus SAS and Boeing Co. as it adds flights in a region where air travel is expected to grow more than 6.4 percent annually through 2031.

Surging Rents

Jakarta’s office rents are expected to surge 79 percent in the three years to Dec. 31, 2014, as technology and financial-service firms expand into emerging markets, New York-based Cushman & Wakefield Inc. said in an e-mailed release today. Rents will jump to 356,028 Indonesian rupiah per square meter (10.8 square feet) per month by the fourth quarter of 2014, from 198,680 rupiah in the fourth quarter of 2011, the group said.

In Jakarta, gross mall rents, which include service charges, could rise by as much as 20 percent, Pamudji said. To deal with limited land availability and the resulting high prices within the city, developers are looking to the outskirts to build so-called townships, cluster communities that combine housing estates with offices, hotels or shopping malls, he said.

Lippo is also building within its existing townships to meet the needs of new buyers, Wijaya said.

“As our townships get more mature, we need to build more commercial facilities; that includes malls,” he said.

Jakarta Focus

At the Lippo Village township, which houses about 60,000 people in more than 10,000 homes, Lippo plans to add high-rise apartments for those unable to afford houses, and a new mall, he said.

Lippo’s residential division, which accounted for about 48 percent of revenue as of Sept. 30, will maintain its focus on Jakarta, which could see price increases of as much as 20 percent in some parts in 2013, Wijaya said. Across Lippo’s own properties, price growth will average about 15 percent, he said.

Lippo Karawaci shares were unchanged at 1,000 rupiah as of 12:09 p.m. in Jakarta and have climbed 52 percent this year.

Boosting Assets

Lippo, which is seeking to boost the value of its assets to $8 billion in five years, from about $3 billion now, will do so by moving forward on development projects on the 1,400 hectares (3,460 acres) of land it holds now, Wijaya said.

The group will fund projects by selling completed properties into its two Singapore-listed property trusts, First Real Estate Investment Trust, which owns its hospital properties, and Lippo Malls Indonesia Retail Trust, which holds its malls, Wijaya said.

First REIT shares climbed 37 percent this year while Lippo Malls advanced 34 percent, outpacing the Singapore benchmark Straits Times Index’s 20 percent gain.

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