March 21, 2017 7:00 am JST
Interview

Southeast Asia fertile ground for Japan's railway companies

Experience in hand, infrastructure development opportunities abound

TOKYO -- Japanese railway companies are increasingly developing real estate in Southeast Asia. Tokyu has been helping build a city on a vast 1.1 million-sq.-meter tract of land in southern Vietnam since 2012. Keikyu and two others are set to begin work this year to develop a city on land of some 190,000 sq. meters in Indonesia. The Nikkei recently spoke with Takeshi Akagi, head of research at real estate services company JLL, about the commercial opportunities and issues for Japanese railway operators in the region. 

Q: Property development by railway companies is accelerating these days, right?

A: Looking back in history, as wages in China's coastal areas rose, the center of global manufacturing activity started shifting from China to Southeast Asia. Amid growing jobs and rising wages, [Southeast Asia], which has been the provider of cheap labor, is becoming increasingly attractive as a consumer market. Japanese developers are building outlet malls and luxury homes [in the region], among other things.

What will happen next in history? Take Indonesia's Jakarta. Industry boomed, the population grew, and people moved in. Over the last two years, city and infrastructure development grew. Railway companies are the last ones to enter the market, where they see opportunities.

Q: What is your view on the prospects for the property market?

A: After the U.S. raised interest rates in late 2015, the flow of money going to emerging markets slowed. Falling crude oil prices hurt resource economies like Indonesia and Malaysia. But for Japanese businesses, the current situation is not much of a problem. Infrastructure development is usually supported by governments, and large sums of money go into it. Railway companies are counting on future economic growth.

Q: Are there any restrictions as they take part in city development?

A: These are long-term projects that last five or 10 years, or even longer. They are effectively part of national policy, and thus, the political risk is high. If the head of the country changes, everything could be overturned. Even within Southeast Asia, social systems and business practices vary from country to country. It is better to partner with companies that understand local practices well.

If you are looking for a partner in Southeast Asia, you should tie up with a conglomerate. Overall market transparency is low, not just in the real estate industry, but in the emerging world as a whole. It is better to be adept at dealing with red tape even for simple things like getting administrative approval or a permit.

Conglomerates have a political presence and ties to the government. Since you get deeply involved and  committed in city development, you won't be easily get exploited by [the government] or pushed aside.

Q: Do Japanese railway companies have a real shot at getting projects?

A: The kind of infrastructure development being undertaken in Southeast Asia today -- railway being at the top of the list -- is what Japan underwent 40 to 50 years ago during its rapid economic expansion. Japan can apply its own methods.

Moreover, people in Southeast Asia, just like the Japanese, tend to choose to live in areas they are already familiar with. By developing areas along new railways, such as opening retail stores, Japanese companies can also benefit from peripheral businesses.

Companies are rushing in from other parts of the world as well. Japanese railway and other companies are late entrants. But the quality of their city development, both hardware and intangibles, is well-received. There is room for them to make money.

Interviewed by Nikkei staff writer Ou Niinuma

Tokyu Corp.

Japan

Market(Ticker): TKS(9005)
Sector:
Industry:
Transportation
Railroads
Market cap(USD): 9,134.36M
Shares: 624.86M

Keikyu Corp.

Japan

Market(Ticker): TKS(9006)
Sector:
Industry:
Transportation
Railroads
Market cap(USD): 6,348.26M
Shares: 551.52M

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