Boasting some of the cheapest prices for luxury properties in Southeast Asia, Indonesia’s high-end property market is about to get a shot in the arm. A combination of factors – new government regulations reducing restrictions on foreign ownership of high-end properties; stable macro-economic outlook; a fast expanding middle class; and the improvement of public transportation – point to a positive outlook for the country’s luxury property market.
According to a recent JLL (Jones Lang LaSalle) Report, in 4Q 2019, Jakarta’s high-end residential units were priced at 270,000 rupiah (US$19) per sq meter. Meanwhile, Hongkong properties were priced at HKD44 (US$59), Singapore SGD48 (US$35), Bangkok THB560 (US$18), Manilla PHP870 (US$17) and Sydney AUD675 (US$443). According to the report, the performance of these luxury apartments across the region in the future will be influenced by Covid-19 outbreaks, since there is restriction on travel and public viewing.
Anton Sitorus, Director, Research Consultancy Savills Research said that price of Jakarta’s overall apartment market during 2019 rose at a moderate pace, by 1.04 percent due to completion of 19,100 new apartment units. Thus, current supply has reached 168,400 units. After three years of no new supply from the luxury apartment (high-end) segment, two projects finally entered the market, namely Anandamaya and Langham. Currently there are 1,729 units of luxury apartments in Jakarta, with an average price of Rp 58,6 million sqm.
“As demand for apartment market remains modest, selling price per sqm during 2019 was seen to be quite stable, with average price stood at RP 26.6 million per sqm,” he said.
Looking at 2020, he predicts that the price will still contract by 1-2% given the global economic situation and Indonesia’s GDP projection, which might be below 5 percent according to Oxford Economics. As the economy slows down, purchasing power will weaken and this will push buyers to have larger cash reserves. Investors and buyers might not consider purchasing properties, but could instead invest into more liquid assets. Fewer number of buyers has been particularly felt in the upper-class apartment projects.
What To Watch
Looking forward, there are many upside benefits that might boost Indonesia’s real estate sales in 2020. Firstly, a stronger economic growth target set by the government at 5.4 percent boosted by government spending budget that is 8.5% larger than originally proposed.
The World Bank also predicted around 52 million Indonesians will join the middle class (which continues to increase) and has a big impact on the economy. With increased disposable incomes, the younger urbanized generation will turn the housing market around, as demand for housing increases. Developers should offer products that suit millennial needs, such offering innovative designs that meet their preference, flexible payment options and more favorable payment terms, like 60 months payment plans, instead 36 months or 42 months.
Relaxation of Loan To Value (LTV) will also increase investor appetite for property investments. Consumers can buy landed homes with less than 70 square meter in width and down payment as lower as 5 percent for their second purchase, and as lower as 10 percent for landed house with more than 70 square meters in width. But first, developers must secure green ship rating/ certification for their area that will be developed.
Another favorable development is the government’s Omnibus law which is also expected to have a positive impact on the property industry as it will make licensing process much faster or be trimmed. There are currently three stages of licensing for developer to commence construction, namely Appointment of Land Use License (IPPT), technical recommendation, and location permit. Under the new law, these can be simplified to just one process.
Previously, the Sertifikat Laik Fungsi (SLF) was issued by local governments and can take up to one year at the earliest. This role will now be handled by the central government.
New Supply Coming On
Between 2020 and 2023, the Jakarta market is expected to receive around 49,200 new apartment units, with average annual supply predicted to be around 12,300 units. Most of the new supply will be dominated by the mid- market segment units, around 38.9 percent or 19,177 units.
In the luxury segment, 267 units are expected to be completed in 2020 and 187 units in 2021, primarily in the CBD area. Existing Luxury apartment developers such as Australian Crown are also expected to enter market in Jakarta’s business district.
Current luxury apartment supply still concentrated around CBD and South Jakarta, namely Keraton Residence at Thamrin street, with rental priced 33 billion rupiah, Anandamaya at Sudirman street (38 million per month), Dharmawangsa Residence at South Jakarta (35 million per month), Pacific Place Residence at Sudirman CBD (33 million per month) and Langham Residence at Sudirman CBD (93 million per month).
One of the factors that will push demand for luxury apartment is an influx of expatriates. As the investment climate in Indonesia improves, more international companies are planning to set up operations or expand existing operations, which will mean more expatriates being hired.
Recognizing the need to attract more foreign direct investments, the Ministry of Manpower has released a decree no. 228 year 2019 on positions that can be filled with foreign talent. The decree allows companies to fill far more positions with expatriates, in some sectors such as construction, the number has been doubled.
“Looking to the future, we believe this positive climate will keep continue on into 2021. It has been proven by the willingness from the government to support more foreign investments,” Sitorus noted.