Foreign investors set sights on Jakarta

PUBLISHED : Wednesday, 08 December, 2010, 12:00am
UPDATED : Wednesday, 08 December, 2010, 12:00am

Foreigners flock to Indonesia for the bargains, which can come in all forms - even real estate. In the capital, Jakarta, property was reduced heavily during the global recession. It's still discounted today.

Given that, pre-recession Jakarta was already considered to be an entry-level property market that makes some deals seem very cheap indeed. But, as with any bargain, it's only cheap if you want it.

With Jakarta, why would you? Traffic, poverty and pollution are the downsides - and that's before you even think about natural disasters. Yet the urban population is burgeoning. According to the latest census, the city's population has now reached 9.5 million and is growing faster than the government had projected. The need for more housing in Jakarta, already afflicted by undersupply, can only become greater, it seems.

At the same time, Indonesia's economy is in relatively good shape, or 'strong with room for improvements', as the International Monetary Fund (IMF) noted in its latest economic report card.

Reporting in September, the IMF found prudent economic management had steered Southeast Asia's largest economy through the crisis and will likely lead to accelerated growth, forecast at 6 per cent for 2010 and 2011. It found Indonesia was the only country in the Group of 20 (G-20) leading economies to lower its public debt-to-GDP ratio, a reflection of improved economic management and 'impressive' policy responses during the crisis.

The IMF also noted that the tide of foreign investment, which ebbed during the European debt crisis earlier this year, was now flowing back into Indonesia. With this came the caution that this experience of 'capital flight' highlighted the need for preparedness against future market volatility.

What does this mean for the property market? According to the latest Jakarta market report from Jones Lang LaSalle (JLL), the third quarter marked the third consecutive quarter of 'continual gradually increasing' growth in the residential sector. 'Compared to two or three years ago, the market may still be lower, but compared to 2009, we are already showing a good increase in activity,' says Anton Sitorus, head of research, PT Jones Lang LaSalle Indonesia. Condominium sales in the third quarter were up 14.6 per cent from the second quarter.

Last year, 2,500 condominiums were sold in Jakarta - this year's third-quarter sales have already surpassed that total - fuelled, Sitorus says, by the gradual recovery of the economy and a more conducive business environment. On the supply side, only one project was completed in the quarter: The Lavande, delivering 727 units of middle-grade condominiums. But in a sign of renewed confidence, developers launched a number of new projects.

JLL expects the condominium market to grow at a more upbeat pace. Low interest rates and a better economic outlook are expected to generate more buyer demand, predominantly from young families or executives working in the city.

But what about vacancy rates, which the JLL report puts at 36.8 per cent? Sitorus says that figure is skewed by older apartments in Jakarta, which lack the amenities of newer condominiums that are in greater demand.

His view is that inquiries for luxury rental apartments will grow gradually alongside an increase in corporate activity, the main demand generator in the luxury sector. 'This will likely lead the demand to concentrate on select quality projects, such as serviced apartments, particularly those managed by international hotel operators, located in or near the [central business district].' Another encouraging market indicator is the improving office market, which should draw more expatriates into the country and a hope for stronger residential demand.

Cushman & Wakefield Indonesia also reports an improving market in Jakarta. Again, it found the greatest take-up rate to be among the upper- to middle-market segments.

'With the worsened traffic jams in Jakarta, condominium living increasingly will become one of the solutions to the problem,' Cushman & Wakefield notes in its third quarter market report. 'Increasing demand for units in close proximity to the workplaces or universities is, therefore, expected throughout the next few periods.'

Foreign investors have ramped up inquiries in the past two months, Sitorus says. Fund managers and construction companies from the United States, South Korea and Hong Kong - potential buyers 'we have never heard from before' - have started showing interest in Jakarta. Price hikes usually follow in a real estate upward cycle, but Sitorus says this has not occurred in Jakarta yet. 'Most developers are concentrating in turnover and, with some, you can still get discounts.'

Bright future

Reporting in September, the IMF found prudent economic management had steered Southeast Asia's largest economy through the crisis and will likely lead to accelerated growth, forecast for 2010 and 2011 at: 6%