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Lippo sees top Jakarta property value triple by 2014

Group plans to invest up to US$10b in domestic real estate projects by that time

(JAKARTA) Indonesia’s Lippo Group, which runs hospitals and property firms, said it would spend up to US$10 billion on domestic real estate projects by 2014, and expects prime Jakarta property to double or triple in value by then.

The group, which has listed units in Jakarta, Singapore and Hong Kong, expects to benefit from strong economic growth and rising incomes in Indonesia and other parts of Asia, chief executive James Riady told Reuters in an interview yesterday.

‘We are going through an unprecedented period of growth and prosperity, and now there is a supply issue, a great shortage of supply’ of commodities and assets which will drive prices even higher, Mr Riady said.

The Lippo Group has about 70 per cent of its assets in Indonesia, where its listed units include Lippo Karawaci and Lippo Cikarang, two satellite town developments near Jakarta with their own hospitals, universities, malls, housing, offices, even golf courses.

‘Indonesia is lagging behind the rest of Asia. Property in Indonesia is extremely cheap, it’s possibly the best value,’ Mr Riady said.

Kemang Village, which is Lippo Karawaci’s latest residential development in one of Jakarta’s most popular, upmarket districts, has already sold out all 460 units in the first development phase at US$1,400 per square metre, Mr Riady said.

A comparable property in Shanghai would cost US$17,000 per square metre, or US$25,000 per square metre in Singapore, he added.

‘Over the next five to seven years, residential, commercial and retail property in prime locations in Jakarta will double or triple,’ he said.

But, despite a drop in interest rates, property prices in some parts of Jakarta have shown little appreciation, reflecting the city’s poor infrastructure and traffic jams. For many low or middle income Indonesians, it is difficult to obtain a mortgage, whereas wealthy customers simply pay for cash.

Shares of Jakarta-listed Lippo Karawaci, which has a stock market value of US$1.1 billion, have risen 57 per cent this year, beating a 45 per cent rise in the Jakarta index .

They trade at a forward 2008 price-earnings ratio of 22.3 times, compared with 15.3 times for the overall index.

Mr Riady said that the group’s property expansion in Indonesia would be funded mainly from the cash from presales, with the remainder raised from bonds and real estate investment trusts , or Reits.

Lippo has two Singapore- listed Reits, and plans to issue more to free up capital from its portfolio of hospitals, shopping malls and housing.

First Reit, which is backed by Lippo’s Indonesian hospitals, raised US$64 million in its initial public offering (IPO) last year. The shares have fallen 0.7 per cent this year, in contrast to the Straits Times Index which is up 11 per cent.

Lippo-Mapletree Indonesia Retail Trust, a joint venture with a unit of Singapore state investor Temasek Holdings, raised US$356 million in its IPO this month and is backed by Indonesian shopping malls. The shares are trading at 15 per cent below the IPO price.

Lippo group also controls Indonesian retailer PT Matahari Putra Prima, Singapore retailer Robinson & Co, and Indonesian multimedia company PT First Media Tbk, which provides Internet services.

Both healthcare and Internet services offer extremely attractive gross margins, Mr Riady said, of 60 per cent and 65 per cent respectively.

Lippo, which currently has four hospitals, plans to build 15 more over the next five years to meet a shortfall in the country’s medical facilities.

‘Healthcare still has a long way to go,’ mainly because of an acute shortage of doctors and poor training facilities, he said.

 

Source: Reuters (Business Times 27 Nov 07)

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