IMMUNE may not be quite the right word to describe the response of Indonesia’s property market to the global downturn and its more recent tentative recovery.
But overall, the sector does seem to have taken the events of the wider world in its stride. There was no crash in property prices when the crisis hit late last year, and unlike places such as Singapore, Hong Kong and South Korea, there has been little talk of a property bubble as the global economy recovers.
Supply and demand mechanisms are very local. Stability in the Indonesian property market has also been enhanced by the fact that the wider economy has weathered the crisis well, thanks to a stable financial system and low dependence on exports.
Stability, however, is not the same as stagnation. Indeed, there has been huge growth in the sector in recent years, with strong domestic demand and a growing middle class encouraging the construction of numerous shopping centres, condominiums and office buildings in the capital Jakarta.
Property consultants also point to the untapped demand in secondary cities such as Bandung, Semarang and Makassar as evidence of the likelihood that the trend will continue.
Tracking trends in Indonesia’s property market offers a revealing window into the changing attitudes of foreign investors. Take the pattern of demand for residential property.
Ten years ago, notes Ms Vivin Harsanto of property consultants Jones Lang LaSalle in Jakarta, most expatriates arriving in the capital were Westerners looking for luxury apartments. Today, however, potential tenants tend to be middle management employees seeking more modestly priced residences. There has also been a marked increase in the number of Koreans, Indians and Filipinos looking for accommodation.
The implication is that large numbers of foreign investors have moved beyond the start-up phase and are now beginning to bring in the specialists and technical advisers they need to implement their business plans. Indonesia also appears to have become an attractive location for a wider range of foreign investors.
The continuing interest of local corporations in property development also attests to an optimistic mood among local investors. Large property developers such as Lippo Karawaci, Agung Podomore and Duta Pertiwi do not have the field to themselves. Rather they must share the pie with local conglomerates whose expertise often lies in quite different industries.
The Dua Mutiara Group, originally specialising in chemicals and agriculture, for example, is part of the consortium that owns Jakarta’s JW Marriott and Ritz Carlton hotels in the upmarket Kuningan district. Cigarette maker Jarum is also heavily involved in the refurbishment of the Hotel Indonesia in Jalan M.H. Thamrin and the construction of associated apartment, commercial and office buildings.
Foreigners who want a piece of the action are limited by laws preventing non-citizens from acquiring land. Manufacturers are usually able to get around this by taking advantage of government regulations that allow them to build factories on land with long-term leases. Foreign residents in Bali have also resorted to using local proxies to acquire ownership of residential properties. But the contracts involved are of dubious legality. The practice is also rare in Jakarta, where the vast majority of foreigners have no intention of taking up long-term residence.
One of the key characteristics of Jakarta’s rental market over the last 10 years has been the lack of volatility. Before the 1998 Asian financial crisis, rentals on three-bedroom luxury apartments were going for around US$4,000 to US$5,000 a month. Today, such prices are still the norm at the upper end of the market.
But there is now far greater variety, and average apartment rentals are closer to US$3,000 to US$4,000 (S$4,200 to S$5,600) in buildings such as Plaza Senayan and the Ritz Carlton. For those on tighter budgets, it is even possible to rent a studio apartment in a reasonably central location from as little as US$500 a month.
The steady prices are not the result of persistently low demand. Instead, according to Jones Lang LaSalle, they are the result of the increasing supply and growing competition. Whether such competition will help dismantle long-standing market practices that foreigners find annoying, such as the demand that tenants pay the equivalent of one year’s rental in advance, is difficult to say.
But some companies managing purpose-built condominiums have recently become more flexible, allowing tenants to pay only six months in advance. According to Ms Harsanto, however, many foreign start-ups find this demand still too high and prefer that their employees stay in more expensive serviced apartments that can be rented on a monthly basis.
Overall, however, there is an optimism in the Indonesian property market that is hard to miss. Many players are betting that, with the recent inauguration of President Susilo Bambang Yudhoyono for a second term, the foreign investors that have avoided the country in the past will soon be taking another look. They may well be right.
Source: Straits Times, 30 Oct 2009