PHENOMENAL:
Jakarta’s rapid growth is set to continue despite glitches
At the end of 2012, practically every property
report had cited Jakarta as the top investment destination in Southeast Asia in
2013. Foreign direct investment grew by 39 per cent in the first half of 2012
and demand for property in Jakarta was strong, resulting in year-to-year office
rents jumping by 29 per cent. Despite difficulties such as securing bank loans
and getting reliable local partners, analysts and market observers enthused
that Jakarta held significant promise.
Fast forward six months later, has Jakarta
fulfilled its promised? Apparently yes, as indicated by recent news reports.
Despite the challenging backdrop of a massive 44 per cent hike in petrol price,
a Sydney-based property developer, Crown International Holdings Group is
looking to tie up with a local developer to build a Jakarta-based apartment
project valued at a minimum of Rp1 trillion. It looks like there is no let-up
to the hot property market there.
Crown believes the apartment living trend in the
Central Business District (CBD) will grow more entrenched in the coming years
due to the bad traffic condition in Jakarta. Traffic is so bad that nowadays
people prefer to stay in apartments close to their workplaces. That way, they
save 2 - 3 hours being stuck in traffic jams on a daily basis. They even shop
in malls close by. The target market is rich local Indonesians buying for their
own occupation or buying to let to the large expatriate market.
Crown’s analysis of the market is supported by
statistics. Jakarta saw a 38 per cent jump in its residential luxury market
prices last year, primarily in what is termed as “critical housing” –
apartments in CBD that are in very high demand due to the overcrowded and
congested conditions in the teeming metropolis of 12 million.
Huge pent-up demand
The Indonesian economy has been chalking up growth
of about 6 per cent every year for the last five years, so there are more
people with money but so are there more of the middle and lower income groups
as well. This has increased the demand for property, says Andri Marsetianto, a
property analyst who does consulting work for a state-owned company.
“Apartments are certainly the new property of
choice because they offer security, safety and easy access,” he continues.
The target market is usually local young
professionals or the newly rich who can afford the Rp30 million price tag in
downtown CBD area. These posh areas are where you can see imposing skyscrapers,
trendy shopping malls and fancy condominiums. And the number of these apartments
being built is increasing even as their prices and rentals climbed in
double-digit figures.
This is because of a huge pent-up demand, says
Andri, backing up his statement with his observation that in Jabodetabek, he
saw every new housing cluster (168 units) and apartment (about 300 units)
launched sold out within a day with a coupon system.
“Apartments still dominate here because of the
lack of prime affordable land. The prime locations are CBD Sudirman, Kuningan,
Menteng, Senayan, Kebayoran Baru, Pondok Indah, Kemang, and TB Simatupang in
South Jakarta. MT. Haryono in East Jakarta, Pantai Mutiara and Kelapa Gading in
North Jakarta and Puri Indah in West Jakarta,” reveals Andri.
The property analyst adds that the building boom
will be sustainable because of the increasing population, development of
commercial properties such as malls and offices in the surrounding areas and
the building of new transport infrastructure such as monorail, mass rapid
transit (MRT) and new toll roads. “There is also a belief among the communities
in the West and North of Jakarta that investing in properties is not just for
capital gain and business support but also for feng shui purposes.”
Double-digit growth
According to Colliers International, the average
apartment price in the CBD has climbed 26 per cent year on year from Rp25.9 to
32.6 million per sq m while prices of apartments similarly jumped in South
Jakarta by 25 per cent year on year from Rp17.8 to 22.5 million per sq m.
The average asking rental rates in the CBD has
also climbed significantly by 11.2 per cent quarter on quarter from US$23.69 to
US$26.34 per sq m per month.
In the office sector, during the first quarter of
2013, the average asking base rental rates in the CBD continued to rise
increasing by 8 per cent (US$) and 6 per cent (Rp) QoQ. This increase in rental
rates was mainly driven by the scarcity of good quality office space with only
a 3 per cent vacancy rate in the CBD.
The retail market continues to perform well too
with average asking base rental rates for all class shopping centres in Jakarta
rising 3 per cent QoQ to Rp468,084 per sq m per month. Rental rates are
expected to rise further as retail space is quite limited in 2014 - 2015.
In the industrial estate sector, during the first
quarter, overall land prices in all regions saw a 10.5 per cent increase on
average.
Jumping in or not?
With such a red-hot market, surely more foreign
developers would follow suit? A query to
SP Setia Bhd elicited this response, “Currently, we have a representative
office in Jakarta and are open to any opportunities that may arise in the
future”, which was essentially the same thing that they said when they first
opened their representative office back in April 2012.
Perhaps there is another side to the story? A
source commenting on Crown’s proposed entry into the Jakarta property market
said that it’s a good development as it would “raise up the quality and
credibility of developers in Indonesia which still leave much room for
improvement.
“Hopefully with foreign competitors, other than
better quality developments, a sense of responsibility and credibility can be
heightened. There is no check and balance or governance that oversees the
property market in Indonesia. Consumers have no protection against the risk of
local developers defaulting on delivery of their projects.”
This may sound good for developers, both local and
foreign, but an expatriate who declined to be named said whether they are
developers or buyers, the truth is that in many areas in Indonesia, the justice
system still favours the highest bidder, and if foreigners are pitted against
the locals, usually the locals will win.
Hazy ownership laws
Hence, if you ever get into a legal wrangle in
respect of your property in Indonesia, don’t count on the merit of your case.
As it is, the law on foreign ownership of property is still not very clear.
Any foreigner who wants to buy property in
Indonesia must have a temporary stay permit (Kitas) or permanent stay permit
(Kitap) and fulfill several related rules. Foreigners have rights over property
for a maximum of 25 years only which could be extended up to 70 years.
There are however several other ways for a foreigner
to invest in property in Indonesia. The safest is by forming a foreign
investment company (PMA), which can own titles to build on or utilise land. The
PMA can also be used as a legal entity through which nominee agreements can be
made.
With this, a foreigner can nominate a “trusted”
Indonesian citizen or company to buy freehold land for them, and then use a
number of documents to ensure that the foreigner still retains his right over
the property. The documents include a contract (rental or purchase)
transferring the property to the nominee, a loan agreement that shows that the
foreigner has “loaned” the purchase price to the nominee, a “Right of Use”
agreement which enables the foreign investor to use the land and a Power of
Attorney which allows the investor the authority to sell, transfer or dispose
of the property as well as to represent the nominee in any dispute regarding
it. Although this method sounds legitimate, it is not a 100 per cent guarantee
that in the event of a dispute with the nominee, the foreigner’s rights would
be protected.
Traps for
unwary?
Thus, despite the overwhelming promise of the
Jakarta property market, it is still full of traps for the unwary. At the same
time, it is not easy to get a loan in the relatively under-developed mortgage
market.
Don’t forget too the many unsavoury aspects of a
fast industrialising country which is overcrowded. There are many serious environmental issues
such as illegal deforestation, over-exploitation of marine resources, wildfires
that cause heavy smog as is happening right now and pollution that comes from
traffic jams, etc.
Andri is however quick to point out that the
traffic jam problem is a multi-dimensional problem, because it relates to the
economic growth in Jakarta, the increasing numbers of cars and motorcycles
coming to Jakarta, the flood, the need for proper mass transportation, etc.
“Maybe the MRT and monorail cannot resolve the
traffic situation, but they can reduce the traffic congestion over time. The
local government of Jakarta should also impose a moratorium on new malls to
reserve more supply of land for public facilities and green lung areas. It’s
also becoming a trend now for big developers to incorporate green features into
their developments.”
In the final analysis, Andri feels that property
is still a favourite investment instrument for the middle class in Indonesia
during these times of rapid growth. The price in general is still lower than in
Malaysia and is one eighth the price in Singapore. That being the case, it will
be some time more before Jakarta’s rapid growth cools off or becomes
unsustainable.
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