In 2019, we witnessed together how the economic conditions in general were relatively less conducive to growth. During those twelve months, challenge after challenge came as part of the business dynamics, and each had to be overcome. We experienced a somewhat similar situation in the national property sector. We saw how the global economic downturn, the contraction of the national economic growth rate, changes in fiscal and monetary policies, as well as shifting patterns of investment and consumer spending together had caused the growth of the property sector to decline. We realize that it was not an easy job at all to get ourselves through this predicament. However, with the support of a team that was compact and had more than 45 years of experience in the property industry, we continued to explore every opportunity and seize them optimally to maintain our business performance.
NATIONAL PROPERTY INDUSTRY DYNAMICS
The slowing pace of global economic growth directly affected the domestic economy. The impact of the trade war between the US and China brought about numerous issues for the regional and national economies. The World Bank reported of a global economic slowdown in 2019 with a growth rate of only 2.4%, lower than what had been projected at the beginning of the year, i.e., 2.9%. Several developed countries also experienced a similar trend, and failed to attain their economic growth targets. Bank Indonesia measured Indonesia’s economic growth rate at 5.02% in 2019. This achievement was lower than in 2018, which was 5.17%. However, the national inflation rate was relatively controlled at 2.27%, lower than 3.13% for 2018. Bank Indonesia’s 7-Day (Repo) benchmark interest rate throughout 2019 slid downward, from 6.00% at the beginning of the year to 5.00% at the end of the year. The Jakarta Composite Index (IHSG) on the Indonesia Stock Exchange closed the final trading day of 2019 at 6,299.53, higher than its position as at the end of 2018, which was 6,194.50.
In general, the property industry continued to experience downward pressures with declines recorded in sales volumes across nearly all development segments. Selling prices of property products were weighted down by the decline in customer demand. Based on market segment, the property products in the middle to upper price segment posted relatively stagnant sales. Movements in the market were more dominated by property products in the lower to middle segment, where on average the purchases were for residential or end user purposes. Sales of residential products such as houses and apartments with prices below Rp1.5 billion were the driving force of growth in the property sector in 2019.
The government in 2019 issued a number of incentives via policy to spur growth in the national property sector. These policies included relaxation of house pricing limits entitled to receive exemption from Value Added Tax (VAT), as regulated in the Minister of Finance Regulation No. 81/2019, relaxation of limits on the value of luxury residences subject to the Luxury Sales Tax (PPnBM) to Rp30 billion, and the reduction of Income Tax (PPh) 22 rate for super-luxury residences from 5% to only 1%. However, the flurry of government policies and incentives had not been strong enough to encourage the significant proliferation of the property market, as the industry itself was faced with a complex tangle of regulations across ministries and government agencies.
COMPANY BUSINESS DEVELOPMENT
On the backdrop of a severe market condition in 2019, the Company took every measure to maintain and improve its business performance. The Company did not launch any new projects in 2019. The focus of development was instead on projects that were already underway, such as launching of clusters or new product types. In the residential area development segment, the Company launched a number of new clusters in Graha Natura Surabaya and Serenia Hills Jakarta. In the apartment products, the Company’s main focus was to market its existing inventory.
such as in the Aeropolis, Fifty Seven Promenade, 1 Park Avenue, SQ Res, Regatta, Praxis, Graha Golf, and The Rosebay projects. In 2019, the Company began the construction of the SQ Res apartment, which was a new development in South Quarter integrated development project, South Jakarta. In addition, the Company successfully carried out the topping off of The Rosebay’s low-rise residential project in Surabaya. Another notable development was the strategic partnership for the development of mixed-use & high rise building called Poins Square, located in Lebak Bulus, South Jakarta. This strategic collaboration was created through a joint venture scheme in ownership, management, and development.
In 2019, the Company’s sales contracted in line with the decline in consumer demand in the property market. The Company posted marketing sales of Rp1.56 trillion or 31.8% lower compared to the achievement in 2018 of Rp2.28 trillion. This figure was equivalent to a 62.3% achievement of the marketing sales target set at the beginning of the year, which was Rp2.5 trillion. Total marketing sales was derived entirely from development income and did not take into account any recurring income. The decline in marketing sales was mainly triggered by the decline in consumer demand in general. Nevertheless, the Company succeeded in maintaining its recurring income performance. Revenue from the investment property segment was recorded to reach Rp623,1 billion in 2019. This amount increased slightly compared to 2018’s figure of Rp596,4 billion. The Company strongly believes that it can boost the contribution of recurring income in the coming years, given the completion of the development of certain office and retail projects, such as Spazio Tower and Praxis in Surabaya. The Company’s financial performance in 2019 was relatively better than the previous year’s performance.
The Company managed to book operating revenues of Rp2.7 trillion, or up by about 7% of the operating revenues in 2018 of Rp2.55 trillion. The Company further managed to maintain its profitability, with gross profit of Rp1.1 trillion, up from 2018’s figure of Rp1 trillion. Responding to the situation and current developments in the property market in 2019, the management took a more conservative approach in its policies. We have been prudent in making every business decision on expansion or development of new projects. We carefully analyzed and managed the use of the Company’s resources in order to deliver the optimal benefit. Some of our new project development plans had to be recalculated to minimize the risks involved.
The Company continued to apply the principle of prudence, and carried out a more rigorous risk management in its strategic planning. The Company also explored various opportunities and engendered innovations to create added value for the Company. The Company deployed an integrated quality improvement program for every aspect of the organization. The Company also provided the opportunity for each division or project to compete with each other in a healthy manner, in terms of delivering breakthroughs and innovations. From this competition the Company obtained numerous brilliant ideas that we believe are highly useful for improving the Company’s overall quality and add value to the business. The Company is committed to continuously developing its human resources (HR) aspect. HR development programs were carried out through a variety of workshops, seminars, training, and mentoring activities.
CORPORATE GOVERNANCE IMPLEMENTATION
As a tangible manifestation of maintaining long-term relationships and providing added value to Shareholders and Stakeholders, the Company is committed to implementing Good Corporate Governance (GCG) as part of its activities. The Company raised awareness of the importance of implementing GCG in all levels of the management and employees. We continuously update and improve the implementation of corporate governance across all levels of the organization. With the full support of the Board of Commissioners and every governance organ, we carry out continuous evaluation to ensure that the implementation of GCG in the Company is in accordance with applicable laws and regulations at all times.
We are also committed to carrying out our business practices and activities sustainably. That remains our priority. This commitment is consistently fulfilled in the execution of the Company’s policies. Continuing the program that was initiated in the previous year, we have been assisted by the Global Reporting Initiative (GRI) in our mapping and preparation of the Company’s sustainable report. We realize that the principle of sustainable development is one of the most essential factors in our business progress. In principle, our development efforts also involve social responsibility management through every business process and activity. This way, we provide benefits to the environment and society in a sustainable manner. Throughout 2019, we conducted in-depth dissemination of sustainability reporting to all elements within the Company. The dissemination was carried out in stages in all divisions, projects, and business units.
APPRECIATION FOR THE COMPANY
In line with the Company’s noble vision, we always strive to provide the best property products for the community. Intiland’s contribution to the property industry over the yers had resulted in a series of awards and accolades from various parties, both domestically and internationally. In 2019, the Company received 16 awards on various fields, such as property product, design and architecture, corporate social responsibility (CSR), care for the environment, marketing, communications, and environmental management compliance. Intiland also won the prestigious award of The Best Property Developer in Indonesia from the 2019 PropertyGuru Indonesia Property Awards and the Country Winner Best Developer at the 2019 PropertyGuru Asia Property Awards.
The Company estimates that the property market will not yet recover in 2020. The rampant spread of the Covid-19 or Coronavirus disease that has now become a global pandemic is posing a grave threat to the whole world. This is expected to exacerbate the current state of the global economy, which remains rife with uncertainty. There is no institution or country so far that can measure the full extent of the spread of, and potential losses due to, Covid-19. Many fear that this condition will result in instability worldwide and pose an enormous obstacle to stability and security, as well as to business growth globally. The spread of Covid-19 is an extraordinary and emergency situation. The Indonesian government has seriously taken strategic steps to tackle the spread of Covid-19. The Company hopes that the the spread of the virus will soon be put to a halt, and the community can carry on their activities as usual, and stability and security can be fostered again to revive the economy and businesses.
On behalf of the Board of Directors, I express my gratitude for the support and guidance given by the Board of Commissioners and the Committees under the Board of Commissioners, as well as to our shareholders, loyal customers, business partners, and the regulators for their unyielding support and trust. We thank the management and employees for their contribution and loyalty in carrying out their duties for the furtherance of the Company’s business. Let us strengthen our collaborations by upholding the values of integrity and professionalism, to always improve our performance and create a sustainable business.
Hendro S. Gondokusumo