Bakrieland forecasts Rp110 billion in sales for new Bali resort

Bakrieland Hotels and Resorts, part of Bakrieland Development expects around Rp110 billion (US$13 million) in revenue this year from pre-sales of units at its latest planned resort in Bali.
Nirwana Bali Golf Suites occupies 27,000 sqm lot in the 103-hectare Nirwana Bali Resort, also owned by Bakrieland. The development is located in Tabanan about an hour’s drive from Ngurah Rai Airport and the construction of the golf suites is scheduled to start in January 2012 and be completed by January 2014.
The area around Tabanan is less developed than other areas in Bali, like Kuta and Legian and the only other developments nearby are Bakrieland’s hotel and another resort.
According to the Jakarta Globe, the resort’s development will cost around Rp220 billion (US$25.9 million) and the average price of units will range from between Rp1.2 billion (US$141,000) and Rp2.5 billion (US$294,000).
According to Bakrieland’s financial statement, Nirwana Bali Resort is valued at up to Rp 884.33 billion (US$104 million). The resort consists of an 18-hole golf course, 146 suites and supporting facilities such as function halls and retail stores.
Bakrieland expects all units to be sold by March 2013.

Ozone: Natural Urban Living

Introducing a new oasis of natural urban living Strategically located in the fresh, green area of Bintaro But close to the toll road and the city proper.

OZONE, a boutique property development Designed, like the ozone in the sky above us,
OZONE represents a safe and natural environment that nourishes the well-being of its target inhabitants Hip and modern young families, looking for the best of affordable, natural urban living.
OZONE,
Tucked away in the tranquil South …
Ozone offers the perfect environment for city-dwellers dreaming of a good life and home. Where your children can grow up in clean and fresh surroundings, A haven of modern life.
Design by well known architect:
Anthony Liu & Ferry Ridwan from Ton ton Studio


Andra Matin


Gregorious Suphie

High Buying Costs in Indonesia

Buying costs are very high in Indonesia How high are realtors’ and lawyers’ fees in Indonesia? What about other property purchase costs? TRANSACTION COSTS Who Pays? VAT 10% buyer Transfer Tax 5% buyer Land and Building Transfer Duty 5% buyer Legal Fees 0.5% - 1.5% buyer Stamp Duty INR6,000 (US$0.65)/document buyer Sale and Purchase of Land Deed 1% buyer Registration Fee INR25,000 (US$3) buyer Real Estate Agent´s Commission 5% seller Costs paid by buyer 20.50% - 22.50% Costs paid by seller 5% ROUNDTRIP TRANSACTION COSTS 25.50% - 27.50% See Footnotes Source: Global Property Guide How difficult is the property purchase process in Indonesia? Individual foreigners can buy condominiums in Indonesia, though the formal law is slightly knotty. Foreigners can also buy control of landed property, though the legal difficulties are larger, and the degree of peace of mind attainable is correspondingly smaller. Condominiums The basis for foreign ownership of strata-title residential property, i.e. condominiums, is Government Regulation No 41 of June 1996. Regulation 41/1996 is however unclear, and no foreigner has actually received a strata title as a certificate of ownership. In practice, foreigners sign a Convertible Lease Agreement by which the title is held in the name of the developer, while a lease is held for a definite period. The Convertible Lease Agreement states that, if and when prevailing laws and regulations permit ownership of strata titles by foreigners, both the lessor and the lessee will be obligated to sign a deed of sale and purchase, transferring title to the foreign owner. Land Foreigners are not allowed to own freehold land. Nevertheless, they can acquire rights to the use of land but not ownership rights. There are three options open to foreigners for buying in Indonesia: 1. Through an Indonesian representative It is common practice to have an Indonesian representative acquire land for the foreign buyer. Ownership of land must be transferred from the previous owner to the Indonesian representative. For the foreign buyer’s security, three agreements must be entered into with the Indonesian representative. Loan Agreement – this states that the foreign buyer lent the purchase price to the Indonesian representative. Irrevocable Power of Attorney – this gives the foreign buyer full authority to sell, lease, mortgage, etc. the land. Permanent Right of Use Agreement – this gives the foreign buyer full rights to the use and occupancy of the land. 2. Through a Penanaman Model Asing (PMA) Company PMA is a “status of doing business” in Indonesia. A PMA company has 30 years to operate after formation. It can be granted additional 30 years, and another 30 years, if it expands its project through additional investment. This can be 100% controlled by a foreigner. The Right to Build (Hak Guna Bangunan – HGB) is available to PMA companies. The right to build or construct on land is valid for 30 years. This can be extended for an additional 20 years, and even for another 30 years after that. To set up a PMA company you will be required to: Submit a detailed business plan. Operate in a business environment that adds value to Indonesia in terms of foreign skills, employment and environmental benefit. Make an appropriate cash deposit in an Indonesian based bank. (The amount varies and is calculated from the capital employed in the business). Show the property investment as an asset of the company. The process takes approximately 3 to 4 months and once completed the company can apply for work permits for the foreign directors, 3 permits in the first year of operation. The cost of setting up is around US$5,000. 3. Through a Leasehold Title This can be granted to qualified foreigners who are domiciled in Indonesia with a KITAS working visa. The lease runs for 25 years, and can be renewed for another 25 years. It is important to hire the services of an Indonesian lawyer to assist with the transaction, especially with the monetary exchange. All land transactions must take place at the Indonesian Notary’s local office, Pejabat Pembuat Akta Tanah (PPAT), where the land is located. While it may be natural to give a deposit, it is not advisable. There is no code of conduct for real estate firms in Indonesia; they do not have any legal obligation to protect the buyer’s interests and guarantee the title. Stamp Duty of INR6,000(US$0.64) is required for each document copy of the Land Deed. Two copies are needed. There are registered and unregistered lands in Indonesia. The Basic Agrarian Law of 1960 governs certified land, which is registered at the local land office. Unregistered land, Adat land, is community-owned. An examination of the land certificate being bought is important. The whole process of registering property involves seven procedures and takes around 42 days to complete. Footnotes to Transaction Costs Table The round trip transaction costs include all costs of buying and then re-selling a property – lawyers’ fees, notaries’ fees, registration fees, taxes, agents’ fees, etc. Currency: Indonesia uses Indonesian Rupiah. Exchange rate is at US$1=INR9,337 as of 21st June 2006. Sales Tax on Luxury Goods: A one-time tax applied at the manufacturing level. 20% Sales Tax on Luxury goods is applicable to luxury house. "Luxury Houses" include condominiums with a unit size of more than 150 sq. m. and landed houses with a building size of above 400 sq. m. or electricity of above 6,600 watt. Value Added Tax: VAT is 10% imposed on most goods and services. The following are exempted: low-cost housing, modest flats and student accomodationsservices rendered for the construction of low-cost housing, modest flats and places of worship leasing services for low cost housing Transfer Tax: Transfer Tax of 5% is payable by an individual or corporate entity obtaining rights to land or buildings. The 5% duty is imposed on the transaction value or the assessed value (NJOP), whichever is higher. A notary can not sign a transfer of title deed until tax payemnt has been made. Legal Fees: Legal fees are negotiable. Processing fees for legal documents are at around 0.5%-1.5% of the property value. Stamp Duty: IDR6,000 per document for notarial deeds and copy (1 original and 1 copy required). Sale and Purchase of Land Deed: The execution of the Sale and Purchase of Land Deed is made before Land Officials, namely a notary public appointed by the Head of the National Land Office or a local Head of a District (Camat PPAT). The cost is 1% of the property value. Registration Fee: IDR250,000 maximum fee for registration of the Land Deed at the local Land Office. Real Estate Agent´s Commission: 5%, paid by either buyer or seller, but not both. Land and Building Transfer Duty In Jakarta, the first IDR60 million is not subject to the Land and Building Transfer Duty (BPHTB) of 5%. It is payable by an individual or corporate entity obtaining rights to land or buildings. The 5% duty is imposed on the transaction value or the assessed value (NJOP), whichever is higher. The tax exempt amount is determined regionally but cannnot exceed IDR60 million. This is different from the Transfer Tax above. TRANSFER DUTY Property Value 2,300,000,000 Tax exempt amount 60,000,000 Taxable value 2,240,000,000 Land and Building Transfer Duty 5% Final tax 112,000,000 

Stunning House in Jakarta, Indonesia

The stunning Static House in Jakarta, Indonesia is designed by architecture firm TWS & Partners. The incredible 800 square meter (8,600+ sq. ft), 4-bedroom house house features two magnificent courtyards that help maximize the outdoor space from within. There’s even a gorgeous pool which helps reflect the natural light during the day. A truly magnificent property, enjoy!

All photographs by Fernando Gomulya

Interior Design

The material used in this building has a light and bright, earthy color scheme to achieve a natural, contemplative and serene living environment.

Using a modern, simple and minimalistic style of furniture, TWS & Partners created a warm palette, combining ethnic and classic piece of decorative furniture and artwork. The marble floor in the public living and dining room act as a background for the white leather sofa, and combines with the Ligne Rosset standing lamp and modern glass and stainless steel coffee table.

The custom made, main entrance wooden door was made by Kayun (wooden artist from Bali), and was designed with specific floral pattern to reflect the courtyard inside.

The dining table is also made from one piece of natural finished wood and is juxtaposed with antique, decorative Chinese cabinets set in front of the khaki, wall paper finish.

All photographs by Fernando Gomulya

All photographs by Fernando Gomulya

All photographs by Fernando Gomulya

- Architects: TWS & Partners
- Photography: Fernando Gomulya

Analysis: Indonesia: Property makes progress

With the economy likely to post another year of strong growth in 2011, and a positive and stable outlook beyond, the Indonesian property sector, according to analysts, looks set to continue its steady advance.

The Indonesian Chamber of Commerce and Industry is forecasting 7 percent growth this year, just up on the 6 percent estimate for 2010 made by the International Monetary Fund (IMF), the government and various other analysts. The IMF and Wold Bank forecast a slightly more modest 6.2 percent for 2011, but there is little doubt that, give or take a percentage point, the economy will perform well.

The robust growth is likely to have positive consequences for the real estate market, as rising incomes increase purchasing power for middle- and upper-income groups in particular, allowing them to invest in new residential properties. Growth is also feeding into demand for commercial real estate as Indonesians’ disposable incomes rise, supporting the retail sector and the country’s growing mall segment. Furthermore, domestic and foreign companies are again looking to expand after slowing corporate growth during the global downturn, pushing up demand for office space, particularly for Grade A property, which has historically been in short supply.

High and stable growth is also helping to boost banks’ balance sheets and making them more confident of the security of lending. For some time after the global economy returned to growth, many businesses and analysts suggested that liquidity still remained tight internationally as banks wound down from pre-crisis positions. It now seems likely that liquidity and confidence are returning, and Indonesia is in a fortunate position to benefit. Its financial sector, much-reinforced since the 1997-1998 Asian financial crisis, was relatively underexposed to the global crisis of 2008-2009 and is well-capitalized. Rising lending should feed through positively to the real estate sector on both the demand and supply side, by making capital more readily available for construction projects and corporate investment, and by supporting the growth of Indonesia’s mortgage market.

In February, Artadinata Djangkar, a director at Ciputra Property, part of property conglomerate Ciputra Development, told the local press that the housing market was still seeing decent demand, despite high rates for housing loans — at around 9 percent to 9.5 percent, considerably above the base rate at the central bank, Bank Indonesia (BI).

It is a view shared by Lauren Sulistiawati, director of retail banking at Bank Permata, an Indonesian bank owned by Astra International and Standard Chartered Bank, who told the local press that recent moves by the BI to raise its base rate to head off inflation had not had an adverse impact on the market. Indeed, Permata expects its mortgage loan book to grow by 20 percent this year, thanks to burgeoning domestic demand. The bank forecasts that it will issue Rp 5 trillion (US$563.69 million) in housing loans this year, with this likely to boost its earnings from real estate lending.

Meanwhile, big-ticket real estate projects continue to rise as developers and their clients capitalise on the economy’s growth. On February 8, the local press reported that Indonesia’s largest listed integrated property developer and mall operator, Lippo, had secured a deal for space at two of its malls with Mitra Adiperkasa (MAP). Lippo agreed to lease 44,500 square-meters of retail space to MAP, one of the country’s leading retailers, for its Kemang Village Mall and St. Moritz Shopping Mall, which are due for delivery in 2012 and 2013 respectively.

“It makes a lot of strategic and commercial sense when two of the largest firms in the industry — landlord and retailer — are in partnership. The synergies are enormous and we need to leverage on each other,” said Michael Riady, CEO for Lippo Karawaci’s mall division.

MAP will take more than 20 percent of the malls’ leasable area. Both firms, like their competitors, are looking to position themselves to tap into the long-term prospects of Indonesia’s market of more than 240 million people.

Another development, and one that has the potential to reshape the sector, is the government’s proposed land acquisition reform bill, which was submitted to parliament for approval in late 2010. The bill is designed to address several issues currently hampering government projects, particularly those relating to infrastructure. The Trans-Java toll road, for instance, has been delayed significantly due to problems with land acquisition, with only 24 percent of the land required for the 650-kilometer highway purchased as of August 2010.

The proposed bill will expedite land acquisition for public purposes while ensuring that these procedures conform to international best practices, put in place a comprehensive system for compensating landowners [with prices based on independent appraisal] and limit opportunities for speculation — at present speculators often buy land targeted for public projects, only to flip it to the government at a healthy mark-up.

According to Wijaya Seta, chief of the land acquisitions sub-directorate at the Public Works Ministry, the bill, if passed, would cut the time needed to start infrastructure projects in half. “Currently land price negotiations can last for more than a year,” he told the local press in September 2010.

If it is enacted soon, as is widely expected, the bill should help to spur investor interest in public-private partnerships for infrastructure development. With the National Development Planning Board estimating that the government needs to spend some $216 billion on infrastructure between 2010 and 2014, private sector involvement will be crucial going forward.

With its strong economy, expanding middle class, growing housing loan market and increasing demand for high-end real estate in the residential, commercial and retail segments, the fundamentals for the local property market are solid. If the government can put an enabling legal framework in place to support investment and resolve issues related to land acquisition, this will give the sector a welcome fillip and should help to maintain sustained growth over the long term.

Indonesia BTN sees property prices, profits up in 2011

Update:-

* Net profit growth seen up 50 pct in 2011

* Loan growth seen rising 25-30 pct

* Bank to raise 3 trln rph via bonds, assets securitisation

JAKARTA, Dec 23 (Reuters) - Indonesia's top mortgage lender, PT Bank Tabungan Negara , sees a government commitment to allow foreigners to own local property next year as an opportunity for aggressive expansion, the company's CEO said on Thursday.

Indonesia's property sector could attract between $3 billion to $6 billion in new investment if parliament completes the passage of a law lifting restrictions on foreign property ownership in Southeast Asia's biggest economy, industry players say.

"I can see property prices jumping, especially in the cities, said said Iqbal Latanro, BTN's chief executive officer, in an interview at his 22nd floor Jakarta office, overlooking the presidential palace.

"The only problem for most Indonesians is low buying-power, but as the economy is growing and the central bank's rate still at its lowest level, then that problem is slowly lifting."

BTN, the smallest of four Indonesian state banks but the country's biggest mortgage lender, plans to open new 200 branches across the archipelago next year in a bid to attract more deposits, Latanro said.

BTN would seek to raise about 2 trillion rupiah via bonds and 1 trillion rupiah through asset-securitisation to fuel the expansion.

RAISE ASSETS, PROFIT FORECAST

"As the economy grows, consumption-type loans also flourish -- especially for housing," said Latanro. "Therefore we have increased our loan growth target to between 20 to 30 percent next year, with asset growth about 15-20 percent."

Latanro said BTN expects profits to jump about 50 percent next year.

The bank's 2009 net profit was 490.45 billion rupiah and is expected to hit about 790 billion rupiah in 2010 -- up 60 percent this year and in line with forecasts by StarMine's SmartEstimate, a consensus that gives more weight to recent forecasts by top-rated analysts.

Latanro's 2011 profit forecast of 1.2 trillion rupiah, however, 50 percent up, is higher than StarMine's estimate of 1.1 trillion rupiah.

"We aim to maintain our net interest margin at around 5 to 6 percent next year amid tightening competition in the mortgage segment," he said.

Indonesia Property Outlook 2011

February 18, 2011

The Indonesia property market is set for a consecutive bullish year in 2011. Two important factors that will play a major role in real estate double digits growth this year are Indonesia’s promotion to investment grade status and real estate foreign ownership reform. These two drivers will ensure a strong and stable growth in Indonesia’s property market for years to come.

Achieving investment grade status means that Indonesia is recognized as a reliable and stable borrower of funds. Currently set at BB by S&P, Indonesia is just one step away to achieving investment grade status. Higher Foreign Direct Investment (FDI) and optimism from local corporates will boost economic activity and growth, which in turn will positively affect the local property market.

Relaxation of foreign ownership restriction on real estate in Indonesia has been intensely advocated by both local and foreign interest parties, such as REI and FIABCI. Comparing to other major cities in Asia, Jakarta property market is still undervalued, but with higher rental yields. A more relaxed foreign ownership lay will certainly boost the overall property market in Indonesia.

The CBD Jakarta market has also enjoying strong consecutive growth.

Growth in Indonesia's Property Industry

Indonesia's property industry should grow about 20 to 30 per cent this year according to to Hiramsyah Thaib, president director of large developer Bakrieland Development.

"Housing demand is still quite high, and on the other hand the economy keeps improving and the rate of housing credit is reaching its lowest point.

The property business will be booming in 2011," Hiramsyah Thaib was quoted as saying by state news agency Antara.

Indonesia's Public Housing Ministry has estimated property sales at around IDR90 trillion (US$10 billion) in 2010, an increase of 15 percent from 2009.

"Clearly some sectors have grown, indicated by motorbike and car purchases, in the past five years. We believe in 2011 the turn will be for the property industry," Hiramsyah said.

Housing demand reached eight million units in 2010, he added, while public purchasing power continued to increase while aggressive lending in the property sector brought mortgage rates down to between 9 and 11 percent.

Part of the growth, he said, was because the economy had largely escaped the worst of the 2008 economic crisis.

The property sector was lifted by developers using their own funds, he said, unlike during the 1998 crisis, when the industry relied on funds from banks.

Bakrieland, the nation's second-largest property firm by assets, has already budgeted IDR2 trillion (US$222 million) to IDR2.5 trillion (US$277 million) for expansion this year, Hiramsyah said.

The company's projects include Sentra Timur in East Jakarta, which includes three towers each housing 300 condos.

Panangian Simanungkalit, a property analyst and consultant with Panangian Simanungkalit & Associates, said that despite a possible rise in Bank Indonesia's benchmark interest rate, lenders would likely keep their mortgage rates at reasonable levels.

"Banks are now very competitive in mortgage lending, so I don't see why they would raise it too much this year," Panangian said.

The central bank said last week that it would keep its benchmark rate at a record-low 6.5 percent despite growing inflationary pressure, according to the Jakarta Globe.

Bali: Nusa Dua – Benoa highway to be finished by 2013

25 Feb 2011

The planned Nusa Dua – Tanjung Benoa highway will most likely replace the proposed Serangan – Tanjung Benoa Bridge that was planned to function as a toll road.

The Nusa Dua – Tanjung Benoa highway was presented on 4 February 2011 at the premises of the Badung’s Head of Regional Office. The presentation was mae by a consortium of four developers: PT. Jasa Marga, PT. BTDC, PT. Angkasa Pura I and PT. Pelindo III. The presentation was attended by members of the Regional Parliament, Head of the Badung Region, representatives of Badung District Parliament< Head of th District Government, village represenatives and community leaders from the areas that will be affected by the project development.

During the presentation it was revealed that 95% of the construction and project development are going to be over the water area. The only three land areas that will used by the project are the Nusa Dua Junction, Ngurah Rai Airport and Tanjung Benoa. In order to ensure a smooth flow of traffic, there is a proposal to develop a roundabout at Ngurah Rai staute.

An interesting proposal came from the Head of the District Parliament, supported by representative from the Bali's District Traffic Police, who suggested that motorcycles are allowed on the planned highway, thereby reducing the traffic jams common at Ngurah Rai Bypass area caused by a large number of motorcycles. It was proposed that a special traffic line for motorcycles may be developed.

Business Developmet Director Director of PT. Jasa Marga, Mr. Abdul Hadi, was quoted saying that the feasibility study will be completed by end of February 2011.

The project is expected to be completed by 2013 to support the APEC Conference that is scheduled to take place in Bali that same year. In this context, the Head of the 3rd Commission of the District Parliament was quoted as saying that since there is a sense of urgency to start the project, and as recommended by Regional Parliament members, the Governor will be asked to give a direct approval for the project in order to shorten the the formal administrative process for all documents related to urban planing and zoning.

Data taken from article “Tol NDB Tuntas 2013″ published in Radar Bali on 5 February 2011

Property Sector Growth In Indonesia Expected to Reach 15% in 2011

10 Mar 2011

The property sector in Indonesia is expected to grow up to 15% in 2011, particularly the office space lease and sale sub-sector.

Local media reported that during the Property Outlook event held in Jakarta early last month, the Chairman of the Advisory Board of the Central Executive Council of Real Estate Indonesia, Mr. Teguh Satria, stated that it is expected that during 2011 the office space lease and sale will be the best preforming property sub-sector.

Mr. Satria was further quoted by saying that the high growth expectations in this sector are based on office space development delays that begun in 2008. Due to this delay, among other factors, it is estimated that the demand for office space will rise beyond the supply: “It is estimated that in 2011 the demand for office space will reach 200,000 square meters, while the supply of the available office space is expected to be no more than 190,000 square meters” Mr. Satria said. In contrast, the growth of the retail sub-sector in big cities is expected to show signs of stagnation.

Data in this article is based on article “Pertumbuhan Property Diperkirakan 15 Persen” published in Komaps, 8 February 2011

Tourists from the Middle East still coming to Bali

18 Mar 2011 | by: Nenad |

Despite political and economic uncertainties back home, businessman from Iran, Saudi Arabia, Lebanon, Qatar, Kuwait, Oman, Egypt and other rich countries from the region continue to travel to Bali and other destinations in Indonesia.

Director of Marintur Bali, Mr. Reddy Iskandar, was quoted by saying that the average length of stay of Middle Eastern visitors in Bali is approximately 4.2 days, during which time an average visitor spends around 1,500 USD. Most of these visitors stay in five star hotels in Bali and Jakarta, or other big cities in Indonesia.

According to the Bali Tourism Office, a number of tourists from the Middle East has reached 6,600 persons – an increase of 11.80%, accounting for 0.27% of the total number of arrivals in bali during 2010 (2.49 million).

Middle Eastern tourists spend their holidays mostly during April and May, flying either by private jets during peak holiday seasons, or using direct flights to Singapore and Malaysia – over the past two years Qatar Airways has introduced direct flights to Bali via Kuala Lumpur and Singapore, thereby inviting more tourists from Europe and the Middle East to Bali.

Data for this article is taken form article “Despite political unrest, Mideast tourists still traveling” published in Jakarta Post on 25 February

Foreigners Able To Own Property in Indonesia in 2011

11 Mar 2011 | by: Nenad

Chairman of the Indonesian Invenstment Coordination Agency (BKPM), Mr. Gita Wirjawan, was quoted saying today that he is confident that the Indonesian Parliament will pass by third quarter of 2011 a draft bill that will regulate foreign ownership of the land and land clearance: “Talks have been conducive and we’re confident the bill will receive parliamentary approval by the third quarter” Mr. Wirjawan told reporters on the sidelines of a seminar in Bali.

Most analysts agree that foreign ownership of the land will give a strong boost to the Indonesian real estate market, both to the residential and commercial sub sectors. Presently in Indonesia foreigners can not own the land and can only lease for a specific period.

The land clearance changes will allow for faster realization of the needed large infrastructure projects – presently many construction companies are faced with large losses since sometimes small number of people are unwilling to sell their land or land price negotiation can take more than a year. This land acquisition law is expected to cut in half the time needed to start infrastructure projects.

Indonesia commercial property market to improve in 2011, led by retail and office sectors

Mar 28, 2011

New mall like Kuningan City in Jakarta will buoy Indonesia's property market in 2011.

Analysts predict that Indonesia’s property sector will improve in 2011, despite increasing inflation and higher interest rates.

Retail properties and office space will be the strongest performers as retail and business sectors grow, The Jakarta Globe reported.

Tommy Bastamy, senior VP of research and consultancy at Coldwell Banker Indonesia, said he expects the property sector to grow as much as ten per cent this year compared to last year’s eight per cent growth. “Retail properties will grow well this year because there will be increases in both supply and demand,” said Bastamy.

Last year, retail property slumped as supply decreased as well as demand. In 2010 the supply of retail properties in Jakarta was only about 99,000 units compared to 228,000 available in 2009, said Bastamy. Demand slipped to 88,000 units last year from 168,000 in 2009. Bastama attributed the drop to businesses finding their feet again following the global economic crisis. He said he expects a 5 percent increase in retail this year with the completion of new malls, especially in Jakarta, such as Agung Podomoro’s Kuningan City and Ancol Entertainment Center. The two will add approximately 110,400 square meters of retail space to the market. 

He also said the market should expect higher demand as business prospects are increasing and new prospective tenants are expected to arrive. For example, Mitra Adiperkasa, Indonesia’s leading lifestyle retailer, announced last week that the company had allocated Rp 350 billion (US$40.3 million) for capital expenditure and planned to reach more than 1,000 total outlets by the end of this year.

“Even with increasing inflation, people do not seem to be worried because per capita income is increasing and minimum wages are continuously increasing,” Bastama said.

In addition to retail properties, he also expects office space rentals to increase this year. Last year, demand for office space grew to about 208,000 square meters, up from about 160,000 square meters in 2009. “Office space will grow by 7 percent this year, especially supported by the projected 6.5 percent economic growth and increased investment,” he said. 

Worries over increasing inflation would mostly affect residential properties, such as apartments, Bastama concluded.

Utami Prastiana, the head of research and consultancy at property consultant firm Procon Indah, said inflation and higher interest rates would especially impact apartments and houses that are directed toward middle- and lower-income groups as those segments are the ones more exposed to mortgages. 

However, she said it also depended on the bank providing the mortgage. “At the moment, with only a 25 basis point hike in the interest rate, there are no apparent increases in mortgage rates,” she said.

Indonesia’s housing market remains weak

Oct 26, 2010

Indonesia’s housing market remains weak

High mortgage rates and foreign ownership restriction have hampered the growth of Indonesia’s housing market.

In Q2 2010, house prices in the 14 cities in Indonesia were up 2.89% over the year, in nominal terms, according to the Residential Property Survey of the Bank of Indonesia. When adjusted for inflation, house prices were actually down 1.42% from a year earlier.

Makassar continued to lead among regions, with prices up 5.10% over the year to Q2 2010. However, in inflation-adjusted terms, prices were up by only 0.70% over the same period. Semarang, on the other hand, had the most modest nominal increase of 0.95%. When adjusted for inflation, prices also dropped 3.27% from a year earlier.

Small-type houses, measuring 36 square meters and below, experienced the most notable nominal increase of 2.89% year-on-year to Q2 2010. While large-type houses, measuring more than 70 square meters, had the smallest nominal increase of 2.05% over the same period. Again, when adjusted for inflation, prices of both small-type and large-type houses dropped 0.55% and 2.22% from a year earlier, respectively.

Since 2008, the Bank of Indonesia has been cutting its policy rate. The rate has been maintained at 6.50% since August 2009, 650 basis points below the August 2006 level. However, this rate is significantly higher compared to the going interest rates in its neighboring countries. Malaysia’s interest in June was 2.5%, while Thailand’s was 1.25%.

The inflation rate in Indonesia has surged to 6.40% in August, 2010 from 2.78% in December 2009. Thus, higher interest rates are expected in the coming months.

Foreign ownership restriction was a significant factor affecting the performance of the Indonesian real estate market. The foreign ownership restriction issue is currently being reviewed. Relaxation of this restriction would definitely boost Indonesia’s housing market.

High inflation leads to uncertainty

The relatively poor performance of residential real estate prices in Indonesia has been something of a puzzle. There is tremendous pent-up housing demand. Indonesia’s population is the world’s fourth largest, at 230 million. Rapid urbanization has led to high urban densities, especially in Jakarta.

And there has been good economic growth. By the early 2000s the Indonesian economy had stabilized after the Asian Crisis. GDP growth averaged 4.6% from 2000 to 2003, then 5.4% from 2004 to 2006, and finally 6.2% in 2007-2008.

But economic growth never translated to strong house price increases. In 2008 the Indonesian house price index was still about 50% below its 1994 peak in real terms.

One possible reason is Indonesia’s highly unpredictable inflation rate, typically outpacing economic growth. From 58% in 1998 and 20% in 1999, inflation was wrestled down to 3.8% in 2000. In 2001 and 2002, inflation soared to more than 11%. Then it eased to 6% in 2004. Then the consumer price index jumped again to 10.5% in 2005, and 13% in 2006. Inflation dipped back to 6.2% in 2007 before rising to 9.8% in 2008.

High inflation with its subsequent effect on economic growth, wages and interests increase the level of uncertainty over the economy. This tends to discourage people from borrowing to finance house purchase.

While real estate investment may be used by wealthy people as a hedge against inflation, this is not an option for the majority of the population.

Construction boom

Another possible reason for Indonesia’s lacklustre residential prices has been the massive amount of real estate construction when the economy grows.

Before the Asian Crisis, the supply of apartments in Jakarta rose from around 6,000 units in 1996 to around 18,000 in 1997, with an additional 2,000 units completed in 1998 and 1999. Scant new supply came onto the market from 2000 to 2003, mostly projects started pre-crisis.

Real estate sales picked up in Q4 2001, encouraging developers to launch new projects, albeit slowly. With strong take-up and increasing occupancy rates, construction picked up pace in Jakarta.

• In 2004 around 9,500 new units were completed, bringing total supply to around 31,500 units.
• In 2005 and 2006, more than 5,000 units were completed annually.
• In 2007 construction exploded, and more than 15,500 units were completed, pushing total supply to 57,353 units.
• During the first half of 2008, 7,500 units were added to the stock, with another 11,107 units expected during the rest of 2008.
• As of Q3 2009, total apartment stock in Jakarta reached 74,920.
• Over the next two years, the total stock is expected to reach 120,000 by 2011, according to Colliers International

This massive rise in the number of apartment units has impacted prices – and some say the downward pressure is likely to continue.

Weak mortgage market

Surprisingly, all the building has taken place despite a relatively underdeveloped mortgage market.

Indonesia’s mortgage market has grown by an average 33.5% annually from 2003 to 2008 in nominal terms. But some apparent growth is due to inflation, and mortgage lending has come from a very low base.

Outstanding credits for house and apartment purchases have risen from IDR15,976 billion (US$1.66 billion) in 2000, to IDR122,794 billion (US$12.7 billion) in 2008. And yet, despite tremendous growth for the past five years, mortgage credits were just 2.5% of GDP in 2008, still below the 2.8% of GDP in 1997.

Despite the recent financial turmoil, Indonesian banks remain strong and adequately capitalized. However, memories of the Asian crisis are still vivid leading banks to be extremely cautious in extending housing loans to the real estate industry. According to a 3Q 2009 Residential Property Survey by the Bank of Indonesia:

• 46.7% of residential property development projects were financed internally
• 34.2% were financed through bank loans
• 10.4% of projects were financed by consumer payments (pre-selling)

For home buyers, interest rates at 12-13% (used by 67% of property buyers under house ownership credit or KPR in Q3 2009), relatively low Indonesian standards, impose a huge burden. During the post-Asian Crisis period, interest rates by commercial banks typically exceeded 20%.

The survey also showed that 16.7% of buyers used progressive cash payments, while 7.6% bought using hard cash.

Yudhoyono, the reformer

The 2004 election of Susilo Bambang Yudhoyono, Indonesia’s first directly-elected president, has been followed by a revival of confidence and substantial economic reforms. A retired general with a doctorate in economics, he has had the political and intellectual acumen to implement reforms, including unpopular ones.

New laws and reforms on Yudhyono’s watch:

• Laws to improve the investment climate and the delivery of public services
• A landmark investment law providing equal treatment regardless of nationality, to attract more foreign investments
• A new tax administration law strengthening the rights of taxpayers, while limiting arbitrary decision-making by tax officials
• Streamlined business licensing procedures
• Higher corporate governance and risk management standards for state-owned banks.

The fruits of the reforms are visible. Approved foreign direct investments (FDI) surged to US$40 billion in 2007, after steadily rising from US$10.2 billion in 2004. FDI to the “Housing and Offices” sector rose from US$57.2 million in 2006. to US$1.04 billion in 2007.

President Yudhoyono was easily reelected in April 2009 with 60.8% of votes during the first round. His closest opponent was former president-Megawati with only 26.8% of votes.

With high domestic consumption and investment, the government is confident that a 5% GDP growth is possible in 2010 while keeping inflation at around 6%.

Foreign ownership restrictions

Pressure for the government to relax foreign ownership rules is growing. The International Real Estate Federation or FIABCI, was the most recent one to air such calls. They note the huge potentials for real estate investment of Indonesia.

In April 2009, rental yields in Jakarta ranges from 12% to 13.5%. This is among the highest in the world, according to Global Property Guide research.

In the past, the government has considered extending the property usage rights of foreigners to 70 years, from the current 25 years, with two extensions possible, of 20 and 25 years. More recently, attention shifted to direct foreign ownership of real estate.

Early in 2009, President Yudhoyono stated that he would ask the National Land Agency (BPN), the home minister and the state minister for people´s housing affairs to conduct an in-depth study into granting expatriates home ownership rights.

Theoretically, foreigners can own condominiums or strata-title residential property. However, a decade after Regulation 41 of 1996, no foreigner has actually received a strata title certificate of ownership. Foreigners are likewise not allowed to own land.

Foreigners can only control landed property in Indonesia either by setting-up a Penanaman Model Asing (PMA) Company or through long-term leases, with the right to buy if the ownership laws are changed.

However, these schemes add unnecessary costs, management difficulties and risks to foreign property buyers. In some cases, foreigners use loopholes in the existing laws to buy houses, apartments or condominiums indirectly.

For instance, a foreigner will ask a national to buy a house using his money. Then before a notary, the two would sign an agreement saying that the national is acquiring a loan from the expatriate worth the same amount of the property value. Part of the agreement is that the loan will be made permanent while the property, used as collateral, can be retaken anytime.

Removing ownership limits can greatly help the real estate sector revive and development in line with the global economic recovery. Government officials, however, noted that safeguards must be placed to prevent speculative purchases. One way of doing this is to limit ownership to permanent residences.

Square Metre Prices - Indonesia Compared to Continent

Descending Rank

Singapore	$16,644
Hong Kong	$16,422
Japan	$12,884
India	$10,265
China	$5,449
Taiwan	$5,251
Cambodia	$3,750
Thailand	$3,072
Philippines	$2,407
Malaysia	$1,546
Indonesia	$1,381

Indonesia: Square metre prices, premier city centre, US$.

Average per square metre (sq. m.) prices in US$/€ of 120-sq. m. apartments located in the centre of the most important city of each country, either the:

• Administrative capital; and/or
• Financial capital; and/or
• The centre of the rental market

Residential square metre prices published by the Global Property Guide are based on in-house research, using a simple method we systematically scan web advertisements, looking at offers for sale, and offers for rent, of resale apartments and houses.

Properties are in excellent condition, with good facilities, and have been refurbished or redecorated within the last five years.

Newly-built and pre-sale property prices are not included. Buyers should expect the prices of new properties to be higher than house prices published by the Global Property Guide.

Indonesia has a quarterly house price index published by the Bank Indonesia. General economics statistics are also from the Bank Indonesia and Statistics Indonesia.