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.