Business In Indonesia Today
Overview of the
Booming Residential Property Sector of Indonesia
Indonesia's residential property
market has shown robust growth in recent years as demand from the country's
rapidly expanding middle class for mid-level and luxury property increased
steadily amid a low interest rate environment and robust national economic
growth. Demand for property is also backed by high consumer confidence as a
recent Nielsen survey shows that Indonesians are among the world's most
confident consumers. Indonesians' consumer confidence was at a four-year high
in the fourth quarter of 2013.
This confidence is generated by
robust macroeconomic growth in recent years. In the last decade, Indonesia has
been posting gross
domestic product (GDP) growth rates averaging around six percent per
year and giving rise to a rapidly expanding middle class segment. In 2012, the
country's middle class numbered around 75 million people (of a total population of
240 million, making Indonesia the world's fourth most populous
country). Research firms the Boston Consulting Group (BCG) and McKinsey expect
that this middle class will grow to between 130 and 140 million people by the
period 2020-2030. With more money to spend, people's lifestyles change
accordingly. In terms of property it means that Indonesians will invest in
property, either to improve one's own life (by living in a nicer house or at a
better location), or by renting out or selling property with profit at a later
stage. Consumer confidence in Indonesia is also backed by people's positive
attitude toward the upcoming legislative and presidential elections of 2014
(scheduled for April and July). Historically, domestic consumption tends to
increase in election years in Southeast Asia's largest economy.
Compared to two decades ago, an
important shift has occurred in the larger cities of Indonesia. The skyline of
big cities such as Jakarta or Surabaya is more and more dominated by high-rise
buildings, either offices or apartments. Central districts in cities have seen
much property development as - amid economic growth - more and more businesses
(both foreign and domestic) needed office space, while there has also been a
trend of middle class people enjoying living in the central parts of the bigger
cities as it reduces travel time to their offices. Also property development in
suburbs and secondary cities has been booming, both from a demand and supply
side. These projects include houses, apartments and condominiums, mixed-use
developments, shophouses, malls in the rapidly growing suburbs of the Greater
Jakarta region (including Jakarta, Bogor, Depok, Tangerang and Bekasi).
Prospective secondary cities include Bandung, Surabaya, Yogyakarta and Semarang
(all on Java, Indonesia's most populous island). Outside Java, large-scale
property development is seen in cities such as Medan and Palembang (Sumatra), Balikpapan
and Pontianak (Kalimantan), Makassar (Sulawesi) and on Bali as well as Lombok.
As a logical side effect of the property boom, Indonesia's land and property
prices have increased considerably in recent years.
In the Greater Jakarta region,
demand for new residential property (middle-up and high-end housing projects)
is at between 100,000 and 200,000 units per year, thus exceeding supply. Luke
Rowe, Senior Advisor at Jones Lang LaSalle Indonesia, sees a very buoyant
market across Jakarta as in 2013 74 percent of all new property projects were
sold before construction was started. When projects are completed, about 90
percent of the property had been sold. These rates are much higher compared to
other countries and thus indicate robust demand. Rowe also notes that 60
percent of property purchases are made by investors, while the remaining 40
percent are made by end-users. However, for the future, Rowe expects that the
ratio of end-users will grow.
However, growth of the property
sector in Indonesia is expected to slow after the central bank (Bank Indonesia)
introduced measures to
curb Indonesians' demand for housing, particularly because it
detected speculative buying. In July 2013, Bank Indonesia raised the minimum
down payment requirement and curbed mortgages for second home ownership.
Moreover, higher inflation starting from June 2013 (after the government
increased prices of subsidized fuels), in combination with an uncertain
international climate (due to the looming end of the Federal Reserve's
quantitative easing program) leading to large capital outflows from Indonesia
(evidenced by a sharply depreciating rupiah
exchange rate in 2013), made Bank Indonesia decide to raise its
benchmark interest rate (BI rate) gradually from 5.75 percent in June 2013 to
7.50 percent in November 2013. In fact, there is still a chance that the
central bank will raise its BI rate this quarter despite generally improving
economic fundamentals (such as the easing current account deficit, easing
inflation and an appreciating rupiah). Amid this less rosy economic
environment, there have been reports that property developers needed to
postpone projects as well as a reported decline in mortgage disbursement by
financial institutions.
Bank Indonesia also prohibits
lending to developers for land acquisition. For the smaller developers, this
forms a (financing) problem and therefore Indonesia's property development
continues to be dominated by the large developers, such as Lippo
Karawaci, Agung
Podomoro, Sinar Mas Land, Kawasan
Industri Jababeka, Ciputra
Development, Summarecon
Agung, and Pakuwon Jati.
My Opinion : I think I can conclude the growth of property industry in Indonesia has always been dependent on economic growth . There are four economic factors that influence the development of the property industry . The fourth thing is, Gross Domestic Product (GDP ) , the value of a country's inflation rate, interest rate of Bank Indonesia (SBI), and the exchange rate.
" Of the four indicators Indonesia tend to strengthen , even in the exchange rate is expected to strengthen this year reached 10,500 per U.S. $ . This indicates that the real estate industry will be affected by the positive impact of growth . Ranked from Global Property Guide Asian countries , Indonesia occupies the third place with an average Gross Rental yields reached 7.05 percent . Though is third , with a number of Indonesian yield reached 7.05 percent in fact Indonesia is a potential market for industrial properties in Asia beating Malaysia and Thailand in the first and second order.
With
the number of which reached 7 percent yield , investors can expect a return of
7 percent also of the value of their investments , this amount was still an
interesting development of the property industry in Indonesia.
With
the rapid growth of the property business in Indonesia is expected to impact
investors think about how that will happen if too many buildings in Jakarta .
One is Banjir . We recommend a location for the building to be thought out
carefully so that no bad effects from the many property development in
Indonesia.
