Rising Demand Set to Boost Property Market in Indonesia

Indonesia’s property market is expected to continue growing next year on the back of an investment rating upgrade and land law ratification that will encourage more development, analysts say.

“With a higher rating and the land law, there is a kind of assurance that developers’ investment will be secured, especially in terms of project risks such as land price and project scheduling,” said Anton Sitorus, head analyst at property consultancy firm Jones Lang LaSalle-Procon in Jakarta.

Indonesia had its sovereign debt raised to investment grade by Fitch Ratings on Dec. 15, and a day later legislators passed the land clearance bill for infrastructure development into law.

Anton said real-estate developers would be encouraged to acquire more land as road construction created access to potential locations.

Office space, retail properties and industrial estates are expected to lead demand for growth, experts say.

“When Indonesia obtains investment grade, offices and retail space will go up even more because these properties are what foreign investors are looking at when they enter a market,” David Cheadle, managing director at property services firm Cushman & Wakefield Indonesia said recently in Jakarta.

Cushman & Wakefield’s research showed that office space had increased significantly in 2011 in the capital.

Demand keeps increasing as companies that currently do business in Indonesia expand and foreign companies seek to set up operations in a market where new office space is limited.

In Jakarta’s central business district, total net take-up for office space occupancy — which measures the change in occupied space — was 332,600 square meters this year, up 63 percent from 2010. That was the highest annual take-up since 1997, the last peak in the office market cycle, the Cushman & Wakefield report said.

The office space occupancy rate in the business district rose 5.5 percentage points to 90.7 percent this year from 2010, according to Cushman & Wakefield.

“This indicates strong corporate recovery since the global financial crisis in 2009,” Cheadle said. High demand pushed average gross rental price up 8.1 percent in dollar terms and 8.6 percent in rupiah terms.

The report said that occupancy rate would ease slightly at the beginning of the 2012 as several office buildings were scheduled to enter the market.

It is expected to rebound quickly to more than 90 percent “as occupiers, buyers and tenants take up physical occupancy, given the high pre-commitment levels within most of these buildings completing their construction early in the new year,” Cushman & Wakefield said.

Anton said growth would continue to be positive as he expected the supply of new office space to be limited.

Jones Lang LaSalle expects continuous business expansion in Indonesia to maintain support for demand next year. The country’s government has forecast the economy to grow 6.7 percent in 2012 from an estimated 6.5 percent expansion this year.

“Considering the global macro condition, there should be some slowing down, but I don’t see signs of it so far. Both local and foreign companies still want to expand in Indonesia,” Anton said.

Numerous foreign companies, mostly from Asia, had contacted Jones Lang LaSalle to gauge the property market in Indonesia, and he said he expected demand for office space to continue outpacing supply through 2014.

In the retail property market, shopping malls are still crowded and Anton expects that to continue next year, driving demand for retail space.

Foreign supermarket and department store operators are likely to be the main drivers for retail demand, he said.

“In the retail sector, Indonesia has a strong long-term appeal, just like China. Indonesia has excellent population structure,” Anton said.

Household spending accounts for more than 60 percent of Indonesia’s economic activity, and the nation’s middle class is growing. With a population of almost 240 million people, average per capita income last year was around $3,000, and that is expected to rise this year.

In the condominium market, Cushman & Wakefield said the new supply in 2012 was projected to reach 18,140 units, or more than double from 8,088 units in 2011. Net take-up is expected to reach 18,163 units, or up from 12,304 units in 2011.

Low interest rates might at least encourage banks to use money that is available to them to dispense as consumer loans for homes, Anton said, rather than having banks use the money to invest in the central bank’s debt papers and government bonds.

Demand for industrial estates remains high and prices have been rising above average this year and in 2010 as manufacturers from automotive companies, consumer goods producers and pharmaceutical factories expanded their production.

So far, the favorite locations for industrial estates are Cikarang and Karawang because of their easy access to the Tanjung Prior port, Anton said.

The two areas are industrial parks in West Java that are home to companies such as carmaker Daihatsu, toymaker Mattel and foodmaker Kraft.






What would you say to this? Will you invest in properties in Indonesia? As a foreigner, what kind of property investment do are you interested at in Indonesia? Share your thoughts with us!





~ by extendasia on December 27, 2011.

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