Sentiment in Indonesia is on the up

Posted on October 12, 2016 | by Chhing Chhut in News | 1442 Views

Sentiment in Indonesia is on the up

Despite a rocky 2016 so far

Business as usual in Jakarta's CBD. AsiaTravel/Shutterstock — Business as usual in Jakarta’s CBD. AsiaTravel/Shutterstock

Indonesia is a difficult country to define. Spread across thousands of islands which straddle the equator for more than 5,000 kilometers, it’s hugely ethnically diverse, being home to 260 million people and speaking over 300 local languages between them.

Nowhere are the county’s vast contrasts better demonstrated than in the capital Jakarta where luxury vehicles inch through congested streets overlooked by low-paid construction workers labouring on the latest multi-million-dollar, mixed use-development projects.

Jakarta, which was named the fastest growing luxury property market in the world in 2014 with price growth of 37.7 percent by Knight Frank, has since seen a significant decline due to a reduced number of expatriate arrivals and business travelers. In 2016, in just a matter of months it dropped from number 7 on Knight Frank’s Prime Global Cities Index Q1, down to number 16 for the same report in Q2.

However, many pieces are in place for sentiment and sales to start edging upwards once more, if JLL’s new Q3 report is anything to go by.

“We thought the market had bottomed, but we’re just starting to come out of it now,” says Todd Lauchlan, country head of Jones Lang LaSalle Indonesia. Indeed, GDB growth exceeded expectations in Q2 2016, growing by 5.2 percent y-o-y, and the Rupiah continues to perform well, now sitting at INR2,998 per USD.

There are numerous positive drivers that the country can look forward to. With the world’s fourth most populous nation, there are 45 million members of the consumer class, and the middle class is set to make up more than 50 percent of the population by 2020. Also, Jakartas population is predicted to increase by 16 percent in the period from 2006 to 2020, providing a concomitant uplift in residential demand.

More: 6 reasons why Thamrin is one of Jakarta’s hottest neighbourhoods

Jakarta: soon to be out of the dark? Aleksandar Todorovic/Shuttershock — Jakarta: soon to be out of the dark? Image: Aleksandar Todorovic/Shuttershock

Movements such as newly lowered rates alongside increased borrowing capability and more relaxed mortgage disbursement will benefit the lower and middle markets, where buyers are heavily reliant on credit. While the highly anticipated tax amnesty, enacted in June, is supporting a bounce back in the luxury market.

In terms of the types of projects we can expect to see, there is a greater desire for well-constructed and unique developments. These will also increase competition among developers, particularly in areas of price, funding strategies, conceptualising new ideas and design quality, according to Johannes Spies, who heads design development for the Hong Kong-headquartered Townland Group and is in charge of the planning and design consultancy’s Jakarta office.

“Design has grown in diversity and complexity from a focus on mid- to high-end landed residential projects to complex integrated mixed-use developments with housing units across the entire income spectrum, where a single residential unit can cost a total of IDR100 million (USD7,500) or a luxury unit can cost the same per sqm,” he says.

“Urbanisation, development demand and property booms will all continue in various sectors with an expected economic recovery in the next three years, but with greater demands on design quality and uniqueness,” he adds. “We will also see new types of residential properties as Indonesia’s urban population continues to grow and undergo cultural change.”

Spies’ firm Townland is involved in multiple projects throughout Indonesia but certain areas in particular have been identified as key areas for future growth – with Jakarta and its immediate environs leading the way.

“We believe that transit-oriented hubs will characterise the urban landscape with developers competing through design and location for their share of this prospective market,” he says.

The Rupiah continues to perform well. Image: Tomas Urbelionis/Shutterstock

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Indonesia’s behemoth capital will continue to undergo a major urbanisation-driven transformation, similar to those seen in Shanghai and Shenzhen in China in the coming years, and some of its peripheral cities are already reaping the rewards.

Located on the eastern border within the Greater Jakarta region, Bekasi is the fastest-growing urban centre in Indonesia. Its proximity to toll road and train links to the Jakarta CBD, and the expansion of industrial zones and port developments nearby have made it a popular choice for investors, while Serpong, also in Greater Jakarta, is another hugely attractive enclave. It was here that developer Summarecon enjoyed one of 2015’s sales success stories with its Rainbow Springs project, which introduced the concept of condo-villas to the area.

Expectations are also high that Bandung, the capital of West Java, will become a model urban development in Indonesia with its architect mayor, Ridwan Khamil, driving an acclaimed smart city initiative, which provides platforms for citizens to actively participate in the city’s development via smart technology and social media.

Big plans for Bandung, West Java. Image: alfin tofler/Shuttershock

While Jakarta and West Java look set to enjoy more growth, the residential property market in Bali, Indonesia’s most potent tourist draw, remains stagnant. Analysts believe that the government needs to invest in tourism infrastructure to counter the decline in commodities.

“New developments like the mixed-use, cliff-side Seven Heaven project in the south of the island – a development that in the past would have been a five-star hotel – will capitalise on the low supply of smaller high-quality units that appeal to both domestic and foreign buyers,” said Spies.

Earlier in the year there were talks of revising foreign ownership laws, in hopes this would revitalize the market, however, these have yet to be seen.

“A change in foreign ownership legislation will obviously carry momentum but nothing has been finalised yet,” said Lauchlan. “I think the biggest impact, in terms of market impact, of allowing foreigners to buy will be Bali. The demand is already there but hasn’t really been satisfied by the current structure. It will also unlock other markets that have previously been under the radar.”

With numerous ambitious infrastructure projects underway, President Joko Widodo’s government appears to be making many positive noises in terms of making Indonesia more investor-friendly. Developers, meanwhile, are upping the ante in terms of quality and imagination when it comes to new projects. In a country as huge and diverse as Indonesia, observers have come to expect the unexpected, but all the signs point to an improved end to 2016 and beyond for the country’s real estate sector.

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