Real Property Market Forecast - Jakarta Metro Area

Here’s a great article from the Wall Street Journal below that gives a positive outlook for the real property market in the greater Jakarta metro area.

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JAKARTA–Fifteen years after the Asian financial crisis sent overheated Indonesian property markets tumbling, the archipelago nation’s real-estate markets are soaring again–just as economic storm clouds gather across the world.

By some measures, Jakarta is among the hottest property markets in Asia. Asking prices for condominiums in central Jakarta have shot up nearly 12% since the second half of 2011, according to Knight Frank, a property consultancy, and more than 50% since late 2008. The city’s office market, meanwhile, is one of world’s tightest, with “grade A” buildings reporting occupancy levels of 98.1%, compared to 92% in Singapore and 85% in Kuala Lumpur, according to property firm Jones Lang LaSalle JLL +0.91%.

Developers are rolling out some of the biggest new projects Jakarta has ever seen, especially Signature Tower, a 111-story building developed by PT Grahamas Adisentosa, a subsidiary of tycoon Tomy Winata’s Artha Graha group. The tower, with an estimated building cost of US$2 billion, will be the world’s fifth-tallest if completed.

Real-estate exuberance has also spread to other Indonesian markets, including the iconic tourist island of Bali. Property analysts say land prices have jumped 50% during the past year in the touristy Seminyak area, where many new bars, hotels and malls are located.

Developers are also looking to second-tier cities in Indonesia, where commodity-price gains in recent years have pushed incomes higher. Michael Riady’s PT Lippo Karawaci LPKR.JK 0.00% in late September announced it was building 13 shopping malls, including in Bali, Medan and Surabaya.

All the latest enthusiasm marks a dramatic turnaround from a decade ago, when many people moved out of Jakarta, construction came to a standstill and offices in the capital were only about 70% occupied, as Southeast Asia’s largest economy struggled to recover from an emerging-markets meltdown. It also marks a big snap back from the short-lived pain caused by the global financial crisis of 2008-09, when local property markets slowed sharply–but briefly–before a blazing rebound in 2010 and beyond. (Read an article about the plan to build 1,000 apartment towers by 2011.)

Few analysts expect a repeat of those episodes, given the fact that Indonesia’s economy is still posting strong economic growth by historical standards. But it’s possible the pace of residential price gains and rent increases could slow, especially if Chinese demand for Indonesia’s core commodity exports doesn’t rebound soon.

For now, developers are planning to charge ahead with plans to add hundreds of thousands of square meters of new office space in the next half-decade. This is almost twice the building work of the years leading up the 1997-98 crisis, though the pool of available office tenants is larger now. They’re also cranking up construction of condominiums, hotels and shopping malls.

One of the swankiest developments is the Ciputra World project in South Jakarta’s trendy Kuningan area. The project, developed by Indonesia’s PT Ciputra Property TBK, will include a shopping mall covering an area of 130,000 square feet, Raffles and W-brand hotels, condominiums, an office tower, and even a Ciputra Art Museum.

The Lippo Group, meanwhile, has embarked on a project called the St. Moritz over 11.4 hectares of land that includes a newly completed luxury apartment block called the St. Moritz Penthouse & Residences and a wedding chapel, a hospital, an international school, an office tower and spa developments. A “presidential suite” tower launched in May 2012 will include units with private gardens and open-plan hot tubs facing the sky.

The Signature Tower, meanwhile, is set to include a six-star luxury hotel with 300 rooms, grade-A office space and conference facilities.

Many property analysts say the Signature Tower–which is supposed to start construction later this year–will never take off, much like the Nakheel Harbour and Tower in Dubai that was proposed and then later canceled in 2010 owing to the last global downturn.

But there are also some property investors who believe the time is now for Indonesia to break through with some highly ambitious projects that draw more international attention, especially ones located on prime real estate like Signature Tower, which is planned in the Sudirman business district where many of Jakarta’s most prestigious addresses are located.

“[The developers] have been trying to build that tower since the ‘90s, and the supply would be very large,” said Fakky Ismail Hidayat, associate director at Knight Frank’s Indonesia branch, who used to work with the Signature Tower’s developers years ago. “But prospects are still good.”

Many foreign companies are still expanding their operations in Indonesia, despite economic uncertainties elsewhere Google Inc. GOOG -0.51% recently opened an office in Jakarta, while Tony Fernandes’s AirAsia 5099.KU -0.33% budget airline recently moved its regional headquarters away to Jakarta from Kuala Lumpur. A recent survey by the American Chamber of Commerce in Indonesia found that 25% of American companies plan on expanding their operations in Indonesia, compared with just 4% in Singapore, citing Jakarta’s relatively low costs versus other cities.

Grade-A office rents, while still some of the lowest across Asian cities, have jumped to 175,000 rupiah, or US$18 a square meter compared with 100,000 rupiah at the end of 2010. Meanwhile, “middle-grade” condominiums–those that sell for between 10 million and 15 million rupiah per square meter–are selling especially quickly, analysts say, with developers adding more than 6,000 units to the market this year.

New Real Property Down Payment Requirements Resulting in Declining Sales

Here’s a good article from the Jakarta Globe describing the current state affairs with the housing or real property market in Jakarta.  Indonesian banks and mortgage lenders are following new lending guidelines that now require the borrower or home purchaser to put down a 30% minimum down payment (up from the previous prevailing rate of 20%).  The loan to value (LTV) ratio is now 70/30 as opposed to the 80/20 previously.  This obviously means that borrowers will now have to dig even deeper into their savings or wallets to throw down the required 30% down payment. 

Since mortgage loan terms in Indonesia are between 10 -15 years in duration (as opposed to 30 year loans in America) this will mean that with the additional 10% down payment the borrower will have a lower monthly mortgage payment and have the loan amortized (killed off) or paid in full in a slightly shorter time frame; but the additional 10% requirement up to 30% now will also have adverse economic consequences:

• slumping or softening property sales.

• home value appreciation or owner/seller equity being affected by slow or declining home sales or "comps".

• first time home buyers being effectively priced out of the market as much greater cash reserves are now required to obtain mortgage financing.

• a possible higher demand for properties on the secondary or re-sales market.

• the possibility of the rise or prevalence of SAF (Seller Assisted Financing) or the owner/seller of the property holding a second deed of trust on the property.

 

The good side of all this, despite the difficulties of some people coming up with the additional 10% down payment, will result in a favorable buyers’ or investors’ market with owner/seller or developer making all kinds of concessions to get a sales contract to go through and stabilized or even backward sliding home prices.  

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Here now below is the article:

Demand for residential properties in Jakarta is expected to drop in the second half of this year and into early next year after Bank Indonesia increased the minimum amount for a down payment needed to purchase a home.

“More of an impact will be seen in the second half of this year or early next year,” said Arief Rahardjo, head of research at Cushman & Wakefield, a property consultancy firm. “I think the demand will continue to decline, but how bad will it be, we don’t know yet.”

In a media briefing on Thursday, he said that in the first half of the year, demand in Greater Jakarta’s premium residential market — with prices of Rp 400 million ($42,000) and above — saw a decline.

Cushman & Wakefield’s report shows that in the first half this year, the average number of houses sold every month fell 32 percent, to 148.6 units from 180.2 units a year earlier.

In terms of value, there was a 29 percent growth, to Rp 149.8 billion, in the average monthly take up as prices of land and houses continued to increase. The growth in housing demand exceeds supply, indicating a 91.8 percent sales rate in the first half, the report said.

Bank Indonesia on June 15 imposed a 30 percent minimum down payment on bank loans for houses that are larger than 70 square meters. (753.5 sq ft. - the size of a very small studio apartment or condo).

Arief said that since the implementation, some developers have claimed that home transactions declined along with processed applications of home loans.

“Some banks admitted that they see some softening in mortgage applications,” Arief claimed.

He said some banks lowered their mortgage rates to attract more home buyers to apply for mortgages.

Arief said that Bank Mandiri in September offered a fixed interest rate of 6.75 percent for the first two years, from 8.8 percent for the first-year rate it had in March.

Banks like Bank Rakyat Indonesia, CIMB Niaga and Bank Negara Indonesia also had similar rate alterations last month, as compared to March.

“Looking forward, I believe, developers might offers buyers payment schemes to boost sales,” he said, including three- to six-month cash installment plans for the 30 percent down payment for banks.

Transactions of homes purchased at this price range often use home loans, he explained.

In upper-class houses, priced at more than Rp 2 billion, 46 percent of transactions use mortgages.

Is Indonesia a Democracy?

Following below is an excellent article giving some background historical information on Indonesia being a "democracy".  Why Indonesia chose to deliberately look away from and repudiate one of the greatest democratic models of all (The United States of America) is inexplicable.  

There is no universally accepted definition of a "democracy" and there are many forms of democracies; however Indonesia has a LONG way to go before earning the moniker of being a "democratic" state or nation.  Just because a country or nation has elections does not create or make it a "democracy";  rather elections are borne from espousal of truly democratic ideals, values and principles - one the core values of which is civil freedom and liberties (with law & order of course).  

Indonesia does not have true freedom of speech and freedom of religion (or freedom from it).  For example, one cannot be an atheist or agnostic in Indonesia and must align themselves with one of only six accepted religions in Indonesia.  Although religious freedom is stipulated in the Indonesian constitution, the government only officially recognizes six religions; Islam, Protestantism, Roman Catholicism, Hinduism, Buddhism, and Confucianism.  

How can a government declare true "religious freedom" when it only recognizes 6 of the nearly 42 or more basic belief systems in the world?!  Furthermore, true "religious freedom" would include the right to worship, not to worship, not to be subject to religion, or have any particular religion imposed on you. The choice would be up to the individual NOT the state. 

Since Indonesia is in part governed by Sharia Law and is a Muslim state or nation highly influenced by Islam, they cannot claim at the same time to be a secular democracy.  And since Indonesia only accepts or recognizes 6 of the 40+ known and established belief systems in the world (or approximately only 14% of the total religions on the world), how can Indonesia claim to be a "pluralist", "moderate", "liberal" or a "democratic" nation?! 

One of the founding principles of the Indonesian Pancasila is "Unity in Diversity" - the part that Indonesia does not tell you is that their definition of "diversity" is very limited in scope. 

Here now below is the full article from the Jakarta Post which makes some great points:  

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When asked about the ideal form for an Islamic state, Muslim figures such as Mohammad Natsir or Mohamad Roem, surprisingly, did not mention any country from the Middle East.

As recorded by Zainal Abidin Ahmad in 1956, when Muslim leaders here were tempted to establish a democratic Islamic state or a nation ruled by a majority Muslim party in the 1950s, they looked to developed democracies such as Switzerland and the Netherlands as models.

Zainal was intrigued by the concept of “siyasat al-akhlaq” as proposed by philosopher and theologian al-Ghazali (1058-1111).

Translating the term as “moral state”, Zainal, a prolific thinker, made his way through a lengthy traditional Arabic bibliography on the subject, as well as reading widely texts that were published in English, French, German and Dutch.

After discussing the notion of the religious state as put forward by St. Augustine and Thomas Aquinas and the critique of the “church state” by Martin Luther, Zainal came to a conclusion. “This does not mean that there should be a ‘religious state’. Even al-Ghazali clearly opposed a state led and controlled by priests or religious leaders.”

“He [al-Ghazali] recommended a ‘moral state’, led by an ordinary human of good morality. The state and morality are not two separate entities, but are bound together. According to al-Ghazali, a state without morality means destruction. Morality without a supporting state will yield error.”

As to how to run a nation, Indonesian Muslims not only straightforwardly indicated a preference for democracy, but also wanted to directly replicate how developed countries in Europe were governed.

Learning from non-Muslim states was never a problem, according to these thinkers, as long as it ended in jalb al-mashalih, the making of good.

Compared to contemporary Indonesian Muslim thinkers who support the idea of Islamic state or Muslim majority rule, the past figures represent a great leap forward.

They understood that democracy referred to nations where it was better applied, and they dared to criticize how many Islamic states were ruled. The thinkers accepted Indonesia as it was, albeit with caveats.

While Zainal Abidin Ahmad, for instance, was happy to discuss al-Ghazali and followed by Karl Mannheim, Nietsche and Toynbee, contemporary Muslim radicals can only munch the same grass. The radicals are only capable of repeatedly delivering sermons and acting as if they were new prophets with the “truest” truth.

If we listen to the message of the radicals — whether in print, online or broadcast by radio stations that are gaining more popularity — we are directly reminded of the martial atmosphere that has persisted in the Middle East since the Middle Ages.

The radicals forget that Indonesia is — and was — a much safer and peaceful place. They forget that Mohammad Natsir, whom they often refer to, was very democratic and very intellectual before he was made into a figure of cult veneration after he established the Dewan Dakwah Islamiyah Indonesia (DDII).

The decision of key Muslim figures to join the Revolutionary Government of the Republic of Indonesia (PRRI) movement in 1958 was taken as an uprising against the Guided Democracy of Sukarno, but it was more an expression of disappointment over the way democracy was manifested in the nation.

Or, in the words of the country’s other founder, Mohammad Hatta, Muslims were less patient with what was going on and forgot that democracy was something to build gradually and very often bitterly.

The notions of Islamic states or parties — as well as Christian states or parties — are not mistakes if we understand what democracy is. Even in the US, an Islamic organization such as the Hizbut Tahrir can exist, although it struggles for the idea of a caliphate, a utopian theocratic Muslim state run under sharia.

Even a secular state such as Germany has the conservative Christian Democratic Union (CDU), while Italy has the Christian Democratic Party (CDP).

Regardless of the share of the vote they gain at the ballot box or the ideologies they espouse, the existence of the parties has been accepted legally and democratically.

Thus, the systematic annihilation of religious parties in the Guided Democracy era (before 1966) and under the New Order (1966-1998) was therefore undemocratic.

After the Old Order was poisoned by communist authoritarianism, the New Order exploited “Islamophobia”, based on what happened along the 1950s, for the military to establish a state nationalism.

We today must be careful not to be trapped by what might be called liberal fundamentalism, rejecting or regarding with suspicion any ideas using religious symbols or with religious origins.

Since democracy requires the rule of law and a legal mechanism to contest political ideas, what all groups must do is to play as fair as possible.

As we observe Independence Day, we hope that we will get a hold of more maturity in democracy. Included must be a willingness to accept anyone who has a different idea, however odd it might be, and decide their reception or repudiation democratically.

The writer is a researcher at the Paramadina Foundation and the Ciputat School for Democratic Islam.

English Proficiency on Rise in Indonesia

Article from Jakarta Globe:


New data released by the International English Language Testing System (IELTS) on Thursday shows that English proficiency in Indonesia is increasing.

The scores received by Indonesian IELTS test takers in 2011 demonstrate that competence in three of four areas of English — writing, speaking and listening — has increased since 2010, according to the organization's website.

“Results from 2011 show Indonesian test takers are committed to English studies and improving their proficiency in the language,” British Council’s Angela Hennelly said.

John Belleville, ELTS Director at IDP Education Pty. Ltd., Melbourne Area, Australia added that the data also proved that more and more Indonesians each year are choosing to take the IELTS exam and increase their global education and employment opportunities.

Based on a scale from 1 to 9, the average IELTS score in Indonesia increased from 6.2 to 6.4 in 2011. Listening, writing and speaking scores all increased, with listening being identified as the strongest skill amongst Indonesians who took the test in 2011.

There are 31 IELTS test centers located across Indonesia, with branches in Bandung, Denpasar, Jakarta, Medan, Semarang and Surabaya.

IELTS test results are requested by more than 7,000 educational institutions, governments and employers around the globe in order to provide an accurate and reliable measurement of English language proficiency.

More than 1.7 million IELTS tests were taken in 2011, a 12% increase compared to 2010.

Western Retailers Scramble for Foothold in Indonesia

Here's an excellent article from the Christian Science Monitor that describes and sums up the current state of the economy in Indonesia (as is evidenced through or manifest by consumer confidence and spending).

Consumer companies in the United States are suffering from a prolonged economic slowdown, and recent figures show the European economy is shrinking. So deep is the malaise in the West, some are calling this the lost decade.

But many emerging markets in Asia are powering ahead, and Indonesia, to the surprise of many, is leading the pack.

In recent weeks shopping malls, superstores, and outdoor markets here have been packed with shoppers stocking up for the Eid al-Fitr celebrations that mark the end of Ramadan, a month when Muslims fast from dawn to dusk. In Indonesia, home to the world’s largest Muslim population, spending spikes during Ramadan as Muslims buy food for elaborate fast-breaking ceremonies. Toward the end of the festive season, which concluded this weekend, they also buy new clothes, and increasingly, big ticket items like cars and electronics.

In years past consumers would spend a year’s worth of savings on the holiday. But spending like this now occurs throughout the year.

A strong economy, rising wages, and easier access to credit are the main factors driving domestic spending. And as wealth levels rise, Indonesian consumers have begun to splurge on higher quality brands.

 

'It's down to lifestyle'

 

“It gives me a shock how women here shop,” says Patricia Mulyadi, a public relations executive pondering the $45 price tag on a black ruffled skirt at Zara, a Spanish clothing retailer, in one of the city’s ritzier shopping malls. She says she spends more on her clothes and personal appearance because she feels the pressure to keep up with friends.

“I make a decent income, but it’s down to lifestyle,” she says.

Ms. Mulyadi is just the type of shopper international companies are targeting as they seek to profit from rising wealth in a country where more than half of the economy depends on consumer spending.

Last month Indonesia beat economists’ expectations by posting second quarter growth 6.4 percent above the same period last year. That makes it the second fastest growing economy among the world’s top 20, just behind China, and the only one where growth is expected to continue.

Despite a rising trade deficit and yawning gap between export revenue and the cost of imports, Indonesia has overcome the global slowdown, mainly through rising investments and soaring domestic spending, driven by Indonesians' growing wealth.

“Many international brands are wanting to open a store in Indonesia,” says Astri Permatasuri, a marketing manager for Plaza Indonesia mall in Jakarta. “From high-end brands to middle brands, they’re pretty excited because they know this is a very [big] potential market for them.”

Rapidly growing middle class

 

The reason Indonesia is now drawing attention from investors in the US and Europe is obvious, say analysts: a young, rapidly growing middle class that accounts for more than half the population in a country of 240 million people.

For now, the majority sit at the bottom of the middle class band, defined by the World Bank as those who spend between $2 and $20 a day. Multinationals that already have a foothold in Indonesia have long targeted this market.

They include Anglo-Dutch multinational Unilever, which sells individual sachets of shampoo for less than $1, and Swiss-based Nestle, which is expanding production of individually wrapped chocolate wafers and snacks that are cheap and easy to transport.

But companies just starting to look toward Indonesia see potential among the middle class that is driving sales of cars, mobile phones, cosmetics, and housewares.

Ace Hardware and Procter & Gamble

 

Chicago-based home appliance retailer Ace Hardware recently announced plans to spend around $20 million this year to open more outlets in Indonesia, while Procter & Gamble, a consumer goods company headquartered in Ohio, is building a factory in West Java to produce baby diapers for Indonesia’s nearly 20 million infants.

“That is certainly a message: that a company like P&G understands what opportunities there are in the consumer sector here,” says Dennis Heffernan, an independent consultant and governor with the American Chamber of Commerce in Jakarta. “They not only want to market their goods, but they also want to make their goods here."


Multinationals, particularly textile and footwear companies, have long taken advantage of cheap manufacturing costs to produce goods here for export. But now more companies are producing goods to sell within the country.

Heffernan says the amount of attention US companies are devoting to the retail and consumer sector has “ramped up radically” in the past two years. The US Commercial Service has been leading trade missions here to seek opportunities for small- and medium-sized businesses.

“A lot of multinationals have been running to China and India in the past, but now it’s becoming clear that Indonesia is a good place to invest and do business,” he says.

Major European retailers are also scrambling to get a foothold. Swedish retailer Ikea, for instance, plans to open its first Indonesian outlet in 2014, while cosmetics company L’Oreal is set to open its new factory, its largest in the world, in the coming months.

Market research firm Roy Morgan, which monitors the consumer market, says consumer confidence is at a record high. But some investors remain reluctant about putting money into a country still plagued by a lack of infrastructure, high costs of doing business, and unclear regulations governing investment.

Chatib Basri, the head of Indonesia’s Investment Coordinating Board summed up the interest last week. “Indonesia is no paradise for investors,” he says, noting a gross lack of infrastructure and high costs of doing business. But, “where else do they go? You can’t miss Indonesia simply because of its size.”