In November of 2012 Price Waterhouse Coopers and the Urban Land Institute stated that Jakarta, Indonesia, is the number one property market in the Asia Pacific region!
It happened suddenly, thanks in part, to the difficulties being experienced in other parts of the world, but most importantly it happened, because of sound demand and supply fundamentals. The office market in Jakarta is experiencing an astonishing occupancy rate of 94 percent. The occupancy rate for A grade space is 98 percent. It really is a situation, where new buildings cannot be delivered fast enough and we are facing a significant supply shortage, which has resulted in 36 percent+ rental growth year-on-year.
Prime industrial land has experienced an unprecedented increase in 2012 of 65 percent year on year, as the manufacturing and distribution businesses scramble for available land lots, so as to expand and cater to the heaving Indonesian marketplace.
Jakarta in 2012 also experienced its highest ever clearance rates for new condominiums and apartments — 12,700 units. The middle market, the lower middle market and the upper-class apartment market are all performing very well. New launches are successful. Prices have been moving up and the appetite for residential apartment property continues to encourage developers, to bring new products to market. See the chart above.
In order to understand the current situation we need to look at the past. The multi-tiered political, social and financial crisis which hit Indonesia in 1997 and 1998 continued to haunt both local and international businesses for many years. Some say, that it took a decade for full confidence to return. In those dark days, Indonesia was considered a financial pariah. It took a complete overhaul of the government and the economy to get the nation back on track. While Indonesia’s transformation to a developing democracy, with a relatively transparent economic system was amazing, it caused confusion and consternation for international investors, who continued to take a wait-and-see approach.
Just as Indonesia was reclaiming its rightful place as the Southeast Asian Tiger economy to watch, the global financial crisis (GFC) struck. The immediate financial impact on Indonesia was not all that significant, but there was an incalculable loss in overall business confidence. Because of this, various real estate development projects did not proceed and were delayed for years, upsetting the demand and supply dynamics and causing a real shortfall of new and attractive projects.
Meanwhile, the local consumer driven economy continued to move forward, unabated and Indonesia emerged from the GFC in good overall economic condition. This resulted in an unusual situation, where demand outmatched oncoming supply of real estate projects. This was because projects were stalled. Any significant development project takes at least six months of planning, up to 6 months for obtaining permits and up to 24 months of construction.
This caused the perfect storm for the Jakarta property market.
New office building developments were not sufficient to meet the massive changes in local and international demand for premium accommodation. Industrial land was in short supply for the new local and international demand surge. New condominium developments were sold off plan at a new record pace, thanks to the consumer and resources boom. Indonesians like property and see it as a potential safe haven.
We are predicting further growth. The growth may be not as radical as has been experienced in the last two years, because new projects are being actively delivered to the market to meet the significant pent-up
Jakarta’s CBD population will continue to swell and the infrastructure problems will continue to be the bane of every Jakartan’s existence. The construction of new inner city roads cannot keep pace with the voracious appetite for automobiles and motorcycles. The city inches closer to dreaded gridlock, a phenomenon spoken of, but not yet experienced in human history. The concept is that the streets become a permanent parking lot.
The original poor town planning, where the city is based upon ribbon development, with almost no capacity to walk safely between destinations, makes the adoption of proper public transportation an incredibly complicated issue for the city government to wrestle with. The flooding and the traffic jams are now a part of everyone’s daily conversation. The greater Jakarta is in need of radical plans and adjustments.
The city is gentrifying before our eyes. New restaurants, hotels, cafes, schools, shopping malls, hospitals, universities, office buildings, apartment blocks, convention centers, corporate headquarters, government buildings are all mushrooming across the city. Not too many public spaces and parks though! It is all geared toward the public making the most of destinations, which encourage more and more spending.
There have been delays in building permits. This is understandable with the new city administration coming to grips with the enormity of their challenges. We understand the backlog is being cleared and that new projects are now being considered and reviewed by the planning and regularity authorities. But the development needs to be responsible: The development code is apparently being altered.
Development approvals for oversized projects are no longer automatic with the developers making cash payments of retribution. Now, we understand that contributions will need to be made, such as public footpaths, bus stops, green spaces and environmentally friendly design. We believe that developers progressively will look to differentiate themselves with green building concepts. Not just paying lip service to green building technology, rather embracing it and taking it to the next logical level.
Jakarta’s journey continues, land is being reclaimed from the sea in the north to develop a new seaside lifestyle. Kota (the old Dutch trading center) may eventually be transformed to its former glory. Flood mitigation measures are being implemented to avoid a repeat of the shocking floods which started the year. Toll roads are being pushed forward. Massive satellite cities are being expanded. But the challenges for this heaving “megatropolis” remain and at times they are daunting!