Key to success: Understanding consumers' needs

Satyasuryawan, Contributor, Jakarta

One no longer hears the rumbling sounds of trucks used for carrying soil. Neither does one see the large crowd of workers. Hectares of fresh, red land lie empty and deserted except for wild, untended scrub and tall grass. The surrounding roads are badly damaged with no sign of repair work in sight.

This is today's sad picture of an area in Cibinong, Bogor, which was originally prepared for 200 houses planned to be set in scenic and serene surroundings.

Some 60 developers in Depok -- about seven kilometers from Cibinong -- have also suffered a similar tragic fate. Some of them stopped work just shortly after the initial stages of their projects. The rest abandoned their sites, leaving them dotted with unfinished houses. This catastrophic situation is caused by nothing else than the economic crisis. Prices of building materials have skyrocketed due to the inflation. High interest rates and the banking crisis have also made it extremely difficult for developers to obtain loans from banks. Consumers' purchasing power has dwindled as well. Developers of upper and lower-middle income residential estates are mostly falling apart and the remaining few are lying low until there are some signs of improvement in the economy.

Among the few survivors is PT Karka Yasa Profilia Plc. One of its successful projects is the modest and low cost residential estate Griya Yasa Lestari located in the Bojong Gede area. The company, with its head office in Solo, Central Java, is also considered a reputable blue chip on the Jakarta Stock Exchange. In 2000, Karka's sales went up by 350 percent and again by 250 percent in 2001. These tremendous achievements were highly commended by Investor magazine, which cited the company as the best share issuer in the property business in 2002.

Even among developers of low cost housing, only a small number have managed to stay in business through the entire economic crisis. Most of them are on their death beds in the "emergency room" of the Indonesian Bank Restructuring Agency, unable to pay back or even make installment payments on loans from banks. Some of their assets have been auctioned off by the Agency and some have been taken over by larger and healthier developers, who are able to weather the stormy conditions due to their sufficient liquidity. In a situation like today's, getting loans or other facilities from the banks is just wishful thinking as the strict supervision applied by the Central Bank makes it more difficult for banks to provide loans for property businesses.

Good luck or the hand of fate aside, PT Karka Yasa Profilia, which is managed by young professionals, very much relies on one unique and proven marketing strategy. It is simply a deep and comprehensive understanding of the property business, which naturally includes consumer behavior and the entire nitty-gritty of the financial market. With their current track record, no one is underestimating Karka's prestigious achievements to date.

Developers of modest and low-cost houses realize that the profit margin in this business is small. Therefore when an economic crisis forced large developers to sell their houses at much reduced prices, many smaller-scale developers followed suit but, unfortunately, found they could no longer survive in the business. They used up their small profit margins to cover working capital and the discounts.

Karka, however, has refrained from selling its houses at reduced prices. Although price is an important factor to consider for consumers in this segment of the market, aside from the location, the quality and the design, Karka has gone against the trend by raising its prices. Still, it provides facilities for buyers in the way the down payment is made.

This price-raising policy is based on the company's understanding of the needs and the behavior of the buyers of low- cost houses.

People in the middle-to-low income brackets actually have the capacity to own a house but their purchasing power has never been tapped. "Their problem is not paying the installments but rather making the down payment. Therefore we try to help them by trying to find loans for this down payment, for example from the Workers' Social Security funds," said Dwi Bagus Handhoko, president director of Karka Yasa Profilia.

Karka also prefers banks offering commercial home loans rather than those providing subsidized home loans because in the case of the former the down payment is more affordable and can be paid after the house is occupied. In other home loans, the down payment must be paid after the loan agreement has been signed.

To be able to compete with other developers, PT Karka Yasa Profilia also offers modest houses with more modern designs to avoid giving the impression of cheapness. The infrastructural facilities are like those of an upmarket estate, with broad roads and wider alleys. Although the price is Rp 500,000 more expensive, the buyers do not object to this arrangement and opt for these better-quality Karka-designed houses. The houses it sells do not just meet functional requirement but are also adjusted to the need of the consumers as more support facilities are provided such as parks, houses of worship house and sports halls.

Logically, every developer could adopt Karka's trick. However, many developers of cheap houses fail to realize the looming danger.

As referred to earlier, the profit from selling a low-cost house is very small. That's why the property business in this market segment is vulnerable to the investment waiting period and the huge cost of promotion. If the company has a big capital, it is always all right to promote its houses during, for example, the grand real estate exhibition held annually in the Senayan Convention Hall. Idle land, also, won't trouble the coffers of the company as profits may come from other projects.

For small-scale developers, however, the problem of idle land, for example, can easily turn into a big blow. If the houses cannot find buyers and promotion is not financially possible, the company may go bankrupt. It must continue paying back its loans to the bank or else the land or other assets will be confiscated.

Karka overcomes the problem of idle land by cooperating with companies building houses for their employees. Many companies have entrusted Karka with such projects based on their lower prices, strategic location and payment system that matches the buyers' purchasing power.

Karka has cooperated with PT Pos Indonesia for the construction of 150 houses for the latter's employees. It has also teamed up with PT Argo Pantes, PT Dynaplast and Shangri-La hotel for the same purpose. Cooperation has also been established with government agencies such as South Jakarta regional administration, the Ministry of Finance and Army headquarters for the construction of their respective employees' houses.

By adopting this method of marketing, the developer has successfully gained a captive market. Contractors and construction material suppliers readily do business with Karka as they are sure that Karka has its buyers and that payments will be made in a shorter period time. Similarly, the banks also trust the company and extend loans to it. This method has also successfully overcome the problem of land availability usually faced by small developers. Sometimes a company planning to build houses for its employees has got its own land plot or has a piece of land close to land that Karka manages.

The Plaza Semanggi project in the former Graha Purna Yudha building, which is being developed by the Agung Podomoro Group, also marks a synergy between buyers' demands and the objective of developers. Of course, a bank cannot just easily extend loans for this Rp 300-billion project. However, under the built-operate- transfer (BOT) system, PT Primatama Nusa Indah, the subsidiary of Agung Podomoro that is developing Plaza Semanggi, has established synergies with three other investors: PIKKO for financing and capital, ProLease Asset Management for property marketing and land leasing and Hari Darmawan Corp. for merchant/tenant affairs. The four of them have closely interrelated businesses.

Synergy and integration in property marketing, as shown above, will ensure the survival of this business and greater profitability on the part of the companies involved.