Mansions in the sky
Albertus Weldison Nonto | February 02, 2012

Property developers keep expanding to reap the soaring demand for apartment and office space in Jakarta, while residential and industrial estates are also booming.As international investors keep a close eye on Indonesia's economy, local property developers just keep on working to meet soaring demand from domestic customers.

The top players are striving to complete projects on schedule and, after exponential growth last year, the outlook of the property development business is rosy right through to 2014.

In the eyes of many, the positive outlook for property mirrors the positive position of the Indonesian economy over the next three to five years. Most investors, small and large, believe this is the right time to buy. Fery Salanto, director of research for Colliers International Indonesia, says the property sector in 2012 will be positive and will drive growth in other sectors.

All property segments will boom, moving toward positive and even aggressive trends as a leader in the strong domestic market. Fery pinpoints apartments and office space as the two segments likely to see most growth, already putting on 15% over the past three years. Colliers also recorded an increase of office and apartment tariffs of 25% compared to 2010. Fery notes that price competition will continue due to high demand despite construction of new projects, adding to supply.

Colliers research shows that about 220,000 sq m of office space was completed last year, with occupancy rates moving up from 88% to 95% over the year. While prices rose, demand remains strong for office expansion and new company establishment. In the apartment market, Colliers reports that about 15,000 units came on the market last year, with new stock likely to add another 15% during 2012.  

This, historically, is the highest number ever in Indonesia, the company says in its report, noting that 80% of the new supply has already been absorbed by the market. Some developers claim that 60% of their under-construction projects have sold in a very short time. High demand in the sector has scaled up prices from about Rp16 million/sq m to Rp18 million/sq m in the Jakarta CBD.

Colliers also indicates that retail sector growth remains stable, with 70% of new projects absorbed by the market with prices relatively flat at an average of Rp350,000/sq m for the Jakarta area and Rp250,000 for outside Jakarta. 

Established players

Ferry adds that big names still dominate the property market. Agung Podomoro has a market share of around 47%, making it by far the most active developer of apartments. In second place the Lippo Group continues to offer prestigious projects such as Kemang Village and St Moritz. Then come Agung Sedayu Group, Pikko Group, Intiland and Gapura Prima Group. Artadinata Djangkar, a director of PT Ciputra Group, says demand for apartments in Jakarta has increased by about 30% compared to 2010.

At the moment the group is completing its My Home at Ciputra World, a multipurpose development with a shopping mall, offices, a hotel and apartments. Artadinata adds that the European crisis hasn't yet had any impact on the Indonesian economy and 2012 should remain rosy, but he warns that in the future companies in Indonesia will need to be more careful in managing funds and internal cash flow.

“We will need to control our borrowing policies, so we can self-finance using our own money if the situation gets worse,” he says. Aburizal Bakrie's project at Kuningan has done well from the booming demand in the residential market, particularly the apartment sector. 

“By the end of last year the company's sales surpassed our 30% growth sales target compared to the year before, totalling Rp1.7 trillion,” says Nuzirman Nurdin, director of Bakrie Development. He also predicts the bullish mood to continue this year and carry over into 2013. The strong domestic market is the main factor behind the property boom.

“Data released by the central bank shows that holders of bank accounts in excess of Rp1 billion increased by 20% per year. This means that the market for property will be huge for the next five years,” says Nuzirman, adding that it is unprecedented that some banks are offering mortgages at interest rates as low as 5%. 

At its Rasuna Epicentrum project, Bakrieland is building three towers for the middle-class market, two for the middle-up market as well as a five-star hotel. Nuzirman says the group is also getting underway with its new 12,000-hectare Sentul Nirwana project in Bogor, in addition to its existing Bogor Nirwana Resort.

Fery comments that developers have now adopted similar strategies to meet market demand. “I have been watching the aggressive expansion by developers throughout the country,” he says, adding that macroeconomic conditions promise to maintain forward progress in the economy as a whole.  

Local investors, he says, are right to expect good returns from their investments in apartments and office space. Over the past year the average investor achieved returns of around 7-8%, some as much as 20%. By anyone’s standards, return on investment in five years is a good deal, and plenty of people will be looking to reap that sort of benefit in the years ahead.  GA    

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