Way back when Jakarta was known as Batavia, no one would have imagined the city tucked on the northern coast of Java would turn into the region’s Manhattan; its nickname is The Big Durian for a reason. Depending on your definition of the city limits, Jakarta teems with upwards of 30 million people, ranking it alongside Tokyo, Mexico City and the Pearl River Delta for urban sprawl. Like many Asian cities, the reminders of the country’s colonial past and its influences linger in the central post office, the medical school of the University of Indonesia, Jakarta Cathedral and the Bank of Indonesia among a clutch of hotels, government complexes and (now) office buildings. The post-Suharto era has been, at times, as turbulent as the 1960s and ’70s, but Jakarta is generally considered a beacon of reform in Indonesia worthy of social- political attention and foreign investment.
Indonesia had a pretty good year in 2011, with 6.5 percent overall economic growth — rooted in manufacturing, financial services and agriculture (coffee’s nickname, “java,” didn’t just fall from the sky) — year-on-year as of the second quarter according to research by Colliers International. The office sector is in good shape, with office rents at a 14-year high and so-called expatriate housing and apartment rental rates are expected to rise in the wake of a strengthening Rupiah. On average, apartments in prime CBD districts boasted steady prices and rental rates in 2011, but could surge over time when rising land prices and construction cost catch up to each other. Meanwhile, upmarket international standard housing rentals in Jakarta can (relatively speaking) rival those found in The Big Apple: Colliers also reported that a five- bedroom, 12,000-square foot plus house in upscale Pondok Indah or Kebayoran Baru could fetch US$15,000 per month; flats were running almost US$6,000 in the same neighbourhoods.
Based on those fundamentals, urban Jakarta is indeed an investor’s market. “The residential market is divided into two main areas: the landed housing sector and the high-rise residential sector,” begins Anton Sitorus, associate director and head of research at Jones Lang LaSalle in Jakarta. “The landed housing sector is centred on local demand. Development of landed housing in Jakarta right now is not popular because of the land price situation. Most developments are located in the outskirts. Meanwhile development in the city is dominated by condominiums, and so far that is dominated by investors. Most Indonesians still don’t make a habit of living in a high-rise. Investors are looking at condominiums they’re looking for capital gains and potential rental income.” And Jakarta has plenty of stock in a balanced market, neither too much nor too little. “In the past developers were very aggressive but right now they’re being careful with their launches. The current situation is better and the growth of supply and demand will be better,” Sitorus finishes.
If anything is putting a crimp in Jakarta’s physical growth it could be its miserable traffic conditions. What makes Jakarta pedestrian-friendly is also what makes it emblematic of Asian traffic madness, and it’s driving people into the city as opposed to out of it. Sitorus agrees that, like Bangkok, Jakartans are swinging away from house dwelling to apartment living, but they’re doing it partially by necessity. “Until now condominium buyers have been investors. But slowly and gradually we’ve seen the number of people buying condominiums for occupation is rising,” he notes. “One of the major factorscausing that trend is traffic. As I mentioned, normally Indonesians, young families, look to buy landed houses. But because traffic is so bad it’s difficult to get to the office from [the outskirts], and so more and more people are considering buying condominiums in the city.”
Corporate and expatriate demand is on the uptick too, particularly over the last two years follow a stagnant period between 2000 and 2008, even in light of the second major stumbling block to Jakarta investment. “The market is still generally domestic demand. It’s not as attractive as Singapore or Hong Kong, or even Kuala Lumpur because the regulations regarding property ownership here don’t allow foreigners to buy property directly,” Sitorus notes. “According to law in Indonesia foreign nationals can buy property if it’s built on land with hak pakai land title, sort of a right of use. However, almost no developers build projects on hak pakai land.” As is the case in Thailand, overseas investors require an Indonesian partner for most property purchases.
The outlook for 2012 in Jakarta is generally a positive one. Sitorus expects continued demand stemming from an environment of historically low interest rates coupled with increased business activity. “Just last month the Indonesian government announced a reduction of the base rate to 6 percent in the hope banks would follow by reducing commercial rates as well. I think this will have a positive impact on the residential sector. End users [are] looking to buy in this environment and investors will shift investments into alternates, including property. It will be positive for both sides.”