Real estate business in Surabaya: How to survive the crisis

Real estate business in Surabaya: How to survive the crisis

By Sirikit Syah

SURABAYA: The activities of Real Estate Indonesia (REI)
members in East Java have not change much since the monetary
crisis hit the country in 1997. There were 218 REI East Java
members in 1997 and now there are about 189, of which 80 percent
operate in Surabaya.

REI East Java chairman Gatut Prasetya told The Jakarta Post
during a workshop titled Taxation for Real Estate members that:
"Only a small number of developers were out of business in 1998.
Some of them have recovered since last year."

Asked about the problem faced by banks, which would affect
support for low-income buyers, Gatut admitted that they had not
fully recovered. "Low-income buyers who are supported by banks
are not recovering yet, but we are optimistic." However, higher-
income brackets have never been affected by the monetary crisis.
"Many of them pay in cash."

Contradicting that statement, some developers who provide
housings for low-level government officials claim that the market
is always good.

FX Andoyo, director of Gunung Batu Utama, a real estate
developer operating in Jember, central East Java, said: "There
are government officials who are not affected by the monetary
crisis. While other people lost their jobs, they have a fixed and
stable income. They have even received salary increases during
the crisis. They are still buying."

Both arguments might be correct. Government officials who
receive even more income during the crisis have no buying
problem. But the banks which usually support their credit are
collapsing. However, developers of low-cost (RS) and very-low-
cost (RSS) housing are surviving, more or less because they do
not expand.

Creative or manipulative?

Another way to survive is by building new designs which are
less expensive. Does this mean manipulating the quality of a
product which does not meet the promotion? "No, of course not,"
denied Gatut. But he admitted there were a few "naughty" members
doing such things. Many consumers filed complaints about the
unfulfilled quality of construction and design. In this case, REI
would try to make both sides meet and deal with their dispute. If
they strongly disagreed, the case would proceed to court.

From the developers' point of view, there are also "naughty"
consumers, who have groundless complaints. In one case, somebody
canceled his purchase and demanded his money be returned, with
interest. "In business, if you cancel, you lose your money. They
wanted more of their money," said Andoyo. Another consumer bought
an RSS-type house, was disappointed and complained, and demanded
a RS type.

However, design and construction can be made to be mutually
advantageous; profitable for the businesspeople, comfortable for
the consumers. Most developers would not agree that this is
"manipulative". It is rather a creative way of doing business.
"We usually also try to be efficient in overheads. Not as much
entertaining, for instance," said Andoyo.

They must not entertain buyers, so perhaps, they entertain
government officials. "It's a conspiracy," said Johan Silas, an
expert on city planning and development, and a lecturer at the
Institute of Technology Surabaya. Johan saw that businesspeople
spent a lot of money on entertainment, gifts, bonuses, discounts,
etc. So, according to Johan, the value is never real.

Conspiracy between businesspeople and the government might
result in disadvantages experienced by consumers. A serious case
happened a few months ago in the Tanjungsari complex, a middle-
upper class housing complex, west of Surabaya. People in
surroundings kampongs claimed to have been cheated when they were
forced to sell their land years ago at a low price. Being ignored
by the government and the developers, they attacked the houses.
They sealed the gates of the houses so people could not get in or
out.

"It was the result of a past mistake. And who is experiencing
the damage now? The consumers! It is unfair," said Johan.

Professionalism

REI East Java general secretary , M. Rudiansyah, said REI was
now focusing on improving professionalism among its members. This
is done by organizing workshops to enrich and equip the members
in doing their business. There are about four workshop a year, in
areas of taxation, Consumer Protection Law, accounting, etc.

About professionalism, REI also did some comparative-study
visits to neighboring countries. A clear difference in Indonesia
is that the range of operation here is very long. If you are in
real estate or property, your work would include investment, land
clarification, development, building/providing infrastructure and
facilities, marketing, maintenance, etc. In many countries, if
you are a developer, you just develop a housing complex, the land
is provided and cleared by other sectors.

The government is lacking in such awareness. It does not feel
obliged to fulfill such needs. Surabaya's Building Fund
Foundation (YKP) is one of the rare real estate developers which
provides adequate infrastructure and facility for its population.
YKP is founded, owned and managed by the city government, to take
full advantage of its cash money.

It has many real estates in strategic locations in Surabaya,
providing simple and standard-type houses which become a favorite
among middle-class workers, mostly government officials. On a 200
square meter by 300 square meter plot, it can build 60 houses to
70 houses. The fulfillment of infrastructure and facilities is
satisfactory. It is, after all, a city government business.

Rudiansyah said that developers expected the government to be
more aware of the need of any housing complex, especially primary
needs such as clean water, electricity, telephone lines, roads,
etc. The government should also take responsibility for
maintaining the facilities, especially the roads.

Concerning professionalism among the developers, Rudiansyah
said that they are now considering more specialization, as was
done by businesspeople in the countries that they visited. "It
might be good if we reduce the range of operations. At present,
it is still impossible to do this, because the businesspeople
themselves enjoy such roles. But in the future, the functions
must be spread to single-specialized roles; whether you like to
prepare the land, develop prepared land, provide infrastructure
and facilities, do the marketing or carry out maintenance. You
have to chose. To be professional, you must be specialized."

Problems faced by developers

Sinarto Darmawan from Dharmalaland said that its apartment
building is only 30 percent occupied. "Among the buyers, they
don't buy to use, but to invest. That's why apartments look so
empty," he said. Sutoto Yakobus from Citra Raya real estate
(Ciputra Group member) added that economic conditions had not
recovered as expected. "Our big market is the expatriates. They
left the country two years ago, and they haven't come back in
numbers as before."

Besides, there are so many government regulations now that
they felt they were becoming obstacles. The most recent one is an
obligation to build a cemetery inside a housing complex. Real
estate developers have already had to commit to a 25 percent area
for roads and drainage and 15 percent for open spaces, which can
be used for social or general purposes. Now, a cemetery is added
to the developers' responsibility.

According to REI members, a cemetery must be managed
professionally by the government, built and maintained with
public retribution. "Besides, people in housing complexes mostly
do not agree with a cemetery in the complex," said Gatut.