Text : Rusmin Lawin
Indonesia’s real estate seems “risk-averse” and by all reckonings, is bucking the property trend currently. The global financial crisis over the past two years should have impacted the real estate negatively but it did not.
Instead, rent of commercial property has risen significantly. I expect this upsurge to continue and rents in most cities and in each of the three sectors – office, retail and industrial – to rise further in each of the next two years.
Analysts have predicted that Indonesia’s property sector will improve in 2011 chalking up 10% in growth, despite increasing inflation and higher interest rates.
According to Tommy Bastamy, Senior VP of Research and Consultancy at Coldwell Banker Indonesia, the property sector is expected to grow as much as 10% this year compared to last year’s 8% growth because of increases in supply and demand.
Last year, retail property slumped as supply and demand decreased. In 2010 the supply of retail properties in Jakarta was only about 99,000 units compared to 228,000 in 2009. Demand slipped to 88,000 units last year from 168,000 in 2009. Bastamy has noted that there will be 5% increase in retail this year with the completion of new malls, especially in Jakarta, such as Agung Podomoro’s Kuningan City and Ancol Entertainment Center.
The two will add approximately 110,400 sq m of retail space to the market to meet expected higher demand.
For example, Mitra Adiperkasa, Indonesia’s leading lifestyle retailer, has recently announced that the company had allocated Rp 350 billion (RM124.5 million) for capital expenditure and planned to reach more than 1,000 total outlets by the end of this year.
“Even with increasing inflation, people do not seem to be worried because per capita income is increasing and minimum wages are continuously increasing,” Bastamy was quoted as saying.
In addition to retail properties, Bastamy also expects office space rentals to increase this year. Last year, demand for office space grew to about 208,000 sq m, up from about 160,000 sq m in 2009.
“Office space will grow by 7% this year, especially supported by the projected 6.5% economic growth and increased investment,” he said.
Another bearer of good news from the property sector is Utami Prastiani, Head of Research and Consultancy at property consultant firm Procon Indah.
Utami says inflation and higher interest rates would impact apartments and houses directed toward middle- and lower-income groups as these segments are more susceptible to mortgages. She stresses however this situation also relies heavily on the banks providing the mortgage. Despite the current 25 basis point hike in the interest rate, there is no apparent increase in mortgage rates as yet.
In general, the Indonesian economy is growing steadily. Our global trade with net exports contributed only 2.8% to GDP in 2009 while private consumption and capital investment made up the bulk of GDP.
This heavy reliance on domestic consumption has helped to shield the Indonesian economy from any slowdown in the Chinese and/or US economies in 2011 or even 2012.
Like in all countries, the healthy growth of the property sector is relative to Indonesia’s economic growth.
Indonesia escaped the recession in 2009 and entered 2010 strong. Analysts predict 2011 GDP growth to record 5.9%. This growth rate has generated considerable optimism in the commercial property market.
Speaking of the positive rent increase in spite of the global slowdown, London-based Business Monitor International magazine reports:
“What is noticeable and unusual from the picture of Indonesia’s commercial property market is that increased rental returns are being reflected in increased yields.
“It is usual to see increased rental returns leading an increase in property values that erodes, or even replaces, any increase in yield.
“The explanation here seems to be that property owners/investors are content with the increase in rents and see no reason to sell. As a result there have been too few property transactions completed to show any significant upward trend in property prices.” – London-based Business Monitor International magazine.
In the residential sector, however, demand for luxury residential property – both purchases and rentals – has been weak since the end of 2009, and remained stagnant throughout 2010.
A plan was announced by the government to allow foreigners to buy property in Indonesia. But this was put aside.
A revised proposal to allow foreigners to buy long-term leases of up to 70 years is on the card now.
With or without foreign ownership, just meeting a basic need – shelter – and the retail and commercial property demands to move Indonesia forward, will continue to sustain the property sector in the years to come.
The world’s fourth most populous country, comprising 17,508 islands, has over 238 million people.
Quote:Retail properties and office space will be the strongest performers as retail and business sectors grow, The Jakarta Globe has reported.
RUSMIN LAWIN, born and raised in Medan, North Sumatra, holds various roles in business, political and social organizations. He is recognized as one of the well-respected young leaders within Indonesia and the ASEAN region. Rusmin was recently elected as the Secretary General of FIABCI International Asia Pacific Committee for the term 2012 to 2014. An apt choice, in view of his entrepreneur background, motivation, organization and leadership skills.