Bright prospects of RIâ€™s property market
Reyhan Fabiano. The Jakarta Post, Jakarta - 06/04/2011
Many people choose property as their main investment because in their opinion this is one of the best ways to improve their financial position.
Indeed, it is not an incorrect viewpoint as macro economy-wise the development of property in Indonesia still has a bright future.
For the past couple of years, the property business here has experienced positive growth and many predict that this will continue until at least 2013. One of the indicators related to the positive growth is the increase in direct foreign investment in this sector over the past two years.
“Based on a yearly comparison, we also noted a significant increase in direct foreign investment and the growth percentage in the property business from 2010 until 2011 is estimated to be between 12 and 15 percent,” said the board chairman of Real Estate Indonesia (DPP REI) Teguh Satria as quoted by several media recently.
Teguh, who is also president of Federation Internationals des Administrateurs de Bien-Conselis Immobiliers (International Real Estate Federation, FIABCI) for Indonesia, said that at least US$13 billion in foreign funds had been invested in Indonesia’s property business.
So what has triggered this positive growth? Teguh said there are a number of factors, one of them being the improved economic situation in the Asia-Pacific region, as well as the issuance of an exit policy or foreign investment regulation by European Union countries and the United States to improve their own domestic economic situation.
“Perhaps due to these factors, American and European investors have started to focus on the Asia Pacific, including Indonesia, based on the positive future in the property business in the region,” said Teguh. Also, Indonesia’s macro-economic situation is also starting to stabilize as indicated by the strong rupiah.
Four property sub-sectors have shown the most positive development, namely office buildings, residential, retail and hospitality. The rapid growth in office buildings is spurred by foreign direct investment, which can be seen by the huge demand by foreign companies in a number of major cities that are the country’s economic barometer.
There are a number of categories in the residential sub-sector: subsidized, middle and upper. There is not much turbulence in the middle and upper categories because the customers are wealthy.
Other analysts and observers share similar optimism regarding positive growth in the property business while an increase is predicted for 2011 compared to 2010. “This is consistent with the prediction for the country’s economy, which is expected to be much better,” said Lucy Rumantir, chief executive officer of Procon Group, Indonesia.
Procon’s outlook at the end of 2010 mentioned that along with the country’s improved economy, the property business here will also perform better as indicated by the increased demand in all property sectors in 2010, which will naturally create higher occupancy and lead to increased rates for 2011-2012.
The increase will have an impact on supply, demand, rental rates and sales prices. The demand for offices, for example, will certainly go up in line with the mushrooming of new businesses or companies.
When one views what is happening in the early part of 2011 based on the aforementioned prediction then indeed the property market is definitely performing quite well, especially in the office sub-sector. This is clear from the increased inquiries compared to the first quarter of 2010. In fact, lessees were making serious inquiries at the end of 2010 for offices to be used in 2011.
The highest demand is for offices located in the Central Business District of Jakarta as well as on Jl. TB Simatupang, South Jakarta, which is outside the CBD. Prices have been increased by developers or owners by much as 5 to 10 percent compared with those at the end of 2010, especially for office buildings with a high occupancy rate in these two areas.
Based on the current high demand for both areas in early 2011, the occupancy rate will naturally remain high this year.
How about the retail sub-sector? According to Procon, in association with Savills, there will also be some improvement here, especially in malls with high occupancy rates where the developers have already started to reduce their incentives for fitting out and payment terms. But for new malls, incentives and more flexible payment terms are still made available for tenants or retailers. Most of the tenants are those in F&B and fashion. It is only natural that retailers analyze the density or the number of customers visiting a mall before deciding to establish a business there, also, of course, the convenience factor in traffic as well as the rental rate.
Based on the government’s prediction at the end of 2010 regarding the 6 to 6.5 percent economic growth for 2011 and the bank interest, which is expected to be kept low, the property sector is expected to perform well. Likewise the condominium sector, which has many buyers that make use of bank loans, hence sales here should also remain high.