Indonesia’s official national motto, if Wikipedia is to be believed, is “Unity in diversity.” That’s something of an understatement when it comes to the country. Comprised of over 15,000 islands (true, some are little more than protruding rocks in the middle of the ocean), Indonesia’s 240 million people speak hundreds of languages and the islands boast one of the world’s highest levels of biodiversity — which makes it popular with adventure travellers. The heavy influence over the course of history by India, China, the Netherlands, and dozens of groups of itinerant traders is still evident. With Jakarta rocketing up the list of cities to watch for investors, Indonesia is finally getting some property respect.
Up & Down
Like the diversity in the country itself, opinions on Indonesia’s property future vary. Indonesia’s mixed economy is growing robustly and it’s been predicted that its economy will be in the globe’s top ten within a decade (currently number 15). The Organisation for Economic Co-operation and Development predicts the real GDP will grow six percent between 2014 and 2018, behind only China, Myanmar and Cambodia. Its 2014 Economic Outlook for Southeast Asia, China and India stated of the region in general, “Investment growth is also projected to remain robust in Emerging Asia, supported by government infrastructure spending to drive long-term development plans. Critically, private investment will be the key to underpinning sustainable growth in overall investment.” While the OECD notes Indonesia faces a host of challenges — weaknesses in insolvency regimes, access to education, transparency among others — and that, “Indonesia also needs to improve its business climate to ensure that its economic growth can be sustained. A key priority is to build on and reinforce the recent progress made in improving the investment climate by simplifying business procedures,” many are bullish on its future despite current blips.
Indonesia’s emerging economy earned new investment ratings in 2011 (stable) from the likes of Fitch and Moody’s after losing it in 1997 as the Asian economy that suffered most during that crisis. Indonesia is natural resource-rich (oil and gas mining) with agriculture, tourism and financial services is coming on strong. As such, the office market, which along with domestic demand underpins any property market, is strong. According to Cushman & Wakefield, Jakarta will rank first in compound rental growth globally and seventh in both new supply as ratio of inventory and absorption in 2014. Though C&W admits to slower growth than previously expected, it’s growth nonetheless. In Indonesia “higher supply is expected over the next two years; absorption, while healthy, will lag with vacancy increasing towards 2015. Rental rates, however, are still expected to grow but at a much slower pace than 2013.” Colliers International was more upbeat, predicting a 37 percent rental rates and 13 percent growth in office supply despite the sharp fall of the Rupiah against the US dollar.
Not surprisingly tighter lending policies and the uncertainty that always swirls around elections (Indonesians head to the polls in the middle of this year) have tempered enthusiasm in some quarters. In addition, the suspected speculative investment that drove the market up to late-2012 inspired the Bank Indonesia to raise minimum down payment requirements, curb the number of second home mortgages and slowly hiked interest rates. The country’s continuing foreign ownership rules can also throw something of a wrench into investor plans.
Despite some doom and gloom Knight Frank’s 2013 Wealth Report noted Jakarta and Bali experienced the highest price growth in the luxury residential sector in 2012 (38.1 and 20 percent respectively), adding, “Jakarta benefited from continued strong GDP growth, which has stood at or above 6 percent for five out of the [previous] six years and, in particular, from rapid growth in middle-class wealth,” and predicted increased access for non-resident purchasers could sustain the trend through 2013. Jakarta was the tenth most crucial office market in Asia to the Report’s surveyed HNWIs.
In the residential market, Jakarta was the surprise performer in Asia-Pacific last year, with price rises a world-best 27 percent according to Knight Frank’s residential price index. That’s largely due to a burgeoning middle class in the midst of broad social changes that are changing the way people live in Indonesia. But the country’s economic growth stall at the end of the year could slow the overall market down in the coming months, however prices, though continuing to rise, remain a fraction of what they are in Hong Kong, Malaysia or India. Luxury villas, mostly branded, in Bali and emerging Lombok remain popular investments (with the right nominees and paperwork for hak pakai) largely due to the massive numbers of regular tourist arrivals from Hong Kong, Taiwan, China, Japan, Australia, New Zealand, Malaysia and Singapore to name just a few.
Overall however, Indonesia, and Jakarta foremost, remains a strong investment option. “Property investment cannot be viewed independently of a country’s demographic. Jakarta has some very impressive statistics, being part of the fourth largest national population in the world, and an ever-expanding middle-class income group,” stated IP Global’s Paul Preston in a statement last year. “When combined with on-going urbanisation, the residential market is expected to maintain positive momentum.”