LIPPO-MAPLETREE - Lippo Malls Indonesia Retail Trust - Investor ...

Retail Market Overview2.7.5 CarrefourFrance’s Carrefour first entered the Indonesian market in 1998, almost at the same time as Continent (alsofrom France). After its merger with Continent, Carrefour became the largest player in the hypermarketsegment, which was fast gaining popularity in the domestic market. Carrefour’s strengths include lowpricedofferings, a wide range of goods, ample space and a comfortable shopping experience. Thesuccess of Carrefour has outpaced its predecessors such as Makro and Goro (local) and also attractedother new players to compete in this market, such as Giant (Hero Group) and Hypermart (MatahariGroup). In 2006, the company recorded total sales of around e689 million in Indonesia, or a 19% growthfrom the previous year.2.8 Supply constraints and the regulatory environmentAccording to Indonesian Agrarian Law, a private company or formal institution can only own land certifiedunder HGB (Hak Guna Bangunan or right to build), HGU (Hak Guna Usaha or right of exploitation) and HP(Hak Pakai or right of use) title.HGB is the most common type of legal ownership by private companies or institutions in Indonesia. Thisland right can be sold, exchanged, transferred, bequeathed or mortgaged. This type of right can be held byIndonesian individuals or entities as well as foreign joint-venture companies which are registered undercurrent Indonesian laws. This right is granted for an initial period of 20 or 30 years and by law extendable foranother 20 or 30 year period with further options for renewal. Based on Agrarian Ministry Regulation/Headof National Land Agency No. 4 Year 1998, the payment to the authority for HGB renewal is 1% to 3% ofassessed property tax value, depending on the land size and tenure.HGU is the right to cultivate or exploit state-owned land for agricultural, fishery or husbandry purposes.The ownership is valid for a maximum of 35 years but extendable for another 25 year period with an optionfor renewal. The title can be held by Indonesian individuals or entities as well as foreign joint-venturecompanies and can be mortgaged.HP is the right to use state-owned land or land owned by others for a specific purpose as agreed by bothparties such as for social activities, religious worship, embassies and international organisations. It is validfor a maximum of 25 years but extendable for another period of 20 years or occasionally for an indefiniteperiod as stated in its grant or agreement. Indonesian citizens, individual foreigners residing in Indonesia,foreign embassies, or representative offices of foreign banks or other foreign entities are allowed to ownland under this title. However, this type of land cannot be sold, exchanged or transferred unless explicitlyprovided for in the grant or agreement.At 30 March 2007, Indonesia’s House of Representative passed the 2007 Investment Law covering keyissues such as guaranteed extension of land rights, equality between foreign and local firms, revamp of thenegative investment list, less bureaucratic process, revamp of overlapping regional by-laws and fiscalincentives. Under the new law services for rights of land use can be provided and extended in advance,and be renewed as requested by an investor, i.e. 80 years for HBG, 95 years for HGU and 70 years for HP.The Government will soon finalize the implementation regulations as mandated by the Law.Investors or developers can buy land under HGB title from other companies/institutions or freehold landfrom individuals. But most of the land in prime locations in Indonesia belongs to the state. Typically,developers enter into a BOT (Build-Operate-Transfer) agreement between the developer and the stateownedcompany as the land owner. Under the BOT agreement, the developer (the operator) builds andoperates the building for a predetermined period and transfers the building to the land owner upon thetermination of the BOT agreement and this can be extended for another agreed period. The operator maypay the land owner either a lease payment (ground rent) or a percentage of revenues received from usageof the land. In some cases, the operator may provide space within the development for the land owners.The design, construction, operation, management, maintenance or financing of the development cost isthe responsibility of the operator. All terms and conditions including the BOT term, ground rent, paymentterm, ownership of the improvement and related matters are stipulated in the BOT Agreement.The limited commercial land available in strategic locations for retail development could restrict supply incities such as Jakarta, Bogor and Bandung. With high land prices in the CBD area, retail centredevelopments tend to be combined with other land uses to optimise development potential.F-31