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Sumitomo Forestry Targets Southeast Asia for Housing Expansion Amid U.S. Market Shift

Sumitomo Forestry shifts focus to Southeast Asia, aiming to build 7,000 homes in 5 years, emphasizing eco-friendly features
s 1911.TSE Mid and Small Cap 2000
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Japanese company Sumitomo Forestry strategically pivots its housing business toward Southeast Asia, diverting attention from the U.S. market due to high interest rates. The move aims to establish a significant revenue stream in a region experiencing burgeoning population growth.

With plans to develop 7,000 housing units in the next five years, Sumitomo Forestry seeks to triple its current unit count to approximately 10,000. Construction of 150 houses on a 3.2-hectare site near Jakarta is set to commence in October 2024, with completion slated for 2027, representing a substantial investment in the billion-yen range.

Priced at around $200,000, these 130-square-meter houses are positioned at double to triple the average home price in Indonesia, targeting white-collar workers from dual-income households. Notably, the houses come equipped with standard solar panels, a rarity in Indonesia, aligning with the company’s focus on environmental consciousness. Sumitomo Forestry’s proprietary construction methods, reducing solar radiation within the homes, contribute to a more than 20% decrease in carbon dioxide emissions during occupancy.

Expanding its environmentally friendly housing initiative, Sumitomo Forestry will incorporate solar panels as standard in a separate 346-house project in Indonesia, set to commence development in January.

As demand for sustainable housing rises in Southeast Asia, the company aims to enhance brand recognition in the region while eyeing expansion opportunities in Thailand and Vietnam. The urgency to diversify arises from uncertainties in the U.S. market, which constitutes around 80% of Sumitomo Forestry’s overseas sales. The Federal Reserve’s intermittent interest rate hikes have driven 30-year fixed mortgage rates to a high of 7.6%, resulting in a 30% year-on-year decline in pretax profit for Sumitomo Forestry’s U.S. housing business during the January-to-September period.

Japanese housing companies, foreseeing medium- to long-term economic growth in Southeast Asia, are increasingly turning their attention to the region. With a projected 12% population growth between January 2022 and 2050, Southeast Asia presents a fertile ground for housing development. However, challenges such as lacking infrastructure in many areas and the need for consumer education on the benefits of environmentally friendly homes pose obstacles to expansion in the region.

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