Archive for the ‘Indonesia’ Category

Will Strong Demand Continue To Be Seen In The Industrial Sector?

Monday, February 25th, 2013

Indonesia is in the spotlight!

Lured by Indonesia’s robust and resilient economy and positive business outlook, many foreign and international companies have flocked to the country to join the band of existing companies, which have enjoyed tremendous growth over the past several years.

This trend has been clearly evidenced by the country’s growing level of Foreign Direct Investment (FDI) during the past three years. According to the Indonesian Investment Coordinating Board (BKPM), FDI steadily grew between 2010 and 2012 by an average of 32% per annum. Last year, Indonesia’s total FDI increased by 36% to approximately USD 24.6 billion (this figure from BKPM does not include investment in the oil & gas, banking, insurance and household industries).

Aside from mining, which has been the most attractive sector (accounting for approximately 17.3% of the total FDI in 2012), most of these new investors have been attracted to sectors that are directly connected to the country’s huge and growing middle class, such as the transportation, telecommunication, logistics, pharmaceuticals and automotive sectors.

With the growth of FDI, the demand for industrial land has also increased significantly during the past three years. Between 2010 and 2012, the net absorption of industrial land in the area of Greater Jakarta averaged around 600 hectares per annum, which is about six times higher than the annual absorption seen during the period between 2000 and 2009.

Consequently, prices of industrial land have also increased. The average industrial land price in the area of Greater Jakarta rose by a CAGR of 50.5% between 2010 and 2012, which is 14 times the CAGR of 3.6% recorded between 2000 and 2009. Currently, the price for industrial land in the area of Greater Jakarta averages at around USD 124 per sqm. Popular estates with good access and infrastructure can fetch as high as USD 150 per sqm to USD 200 per sqm.

While Indonesia has continued to attract foreign companies to relocate or establish their production facilities within the country, there is growing concern over the increasing cost of land that could potentially hamper future market growth. Reportedly, some investors have expressed concerns about the industrial land prices, which are expensive compared to some other countries in the region. Based on anecdotal evidence, the price of acquiring a site for a factory in the area of Greater Jakarta is estimated to be around 10-15% of the total initial investment, while in some other Asian countries, the costs of acquiring land are only about 5% of the initial outlay. As such setting-up a factory in Indonesia may not be as appealing.

With the country’s robust economic growth and strong domestic demand, we believe that investors will continue to be strongly interested in building manufacturing facilities and the demand for industrial land will likely continue to grow in Indonesia.

About the author
Anton Sitorus is the Head of Research for Jones Lang LaSalle in Indonesia.

Posted in Indonesia, Industrial Research | 1 Comment »

Foreigners Can Not Buy Property In Indonesia…Really?

Thursday, November 1st, 2012

If I had to choose the most confusing issues in the Indonesian property market, foreign ownership would be at the top of the list.

There are so many references from public sources (particularly the internet), which claim that only Indonesians can buy and own property assets in Indonesia, and that foreigners are not allowed to do so, making leasing their only option.

I have also met several experienced real estate professionals and their understanding of the issue is equally unclear and limited at best. Meanwhile, news regarding this matter have been misleading at times. Making the situation worse, government officials have been quoted to use nationalism as a basis for disallowing foreigners in purchasing properties.

Despite all of this misinformation and confusion, there are foreigners who own property in Indonesia. In places like Bali and Batam, many of the villa or resort owners are Australians and Singaporeans or expats from America and Europe. Meanwhile, many Japanese and Korean nationals own residential properties in Jakarta.

What is going on? It seems like there is no clear information or distinct regulation concerning this matter.

To put things in order, let us first examine the laws concerning foreign property ownership in Indonesia. There are basically two fundamental rulings on this issue – the Basic Agrarian Law of 1960 (UU Pokok Agraria Tahun 1960) and Government Decree #41 of 1996.

The Basic Agrarian Law is the main law concerning land ownership in Indonesia and includes a section about ownership by foreign individuals and institutions. According to the law, a foreigner who resides in Indonesia is allowed to own a residential property built on land with a ‘Hak Pakai’ (right of use) title. Indonesian law recognises several land titles. The most widely-used land titles are:

  1. Hak Milik’ (freehold) – exclusively for Indonesians;
  2. Hak Guna Bangunan (right to build) – for companies and institutions;
  3. Hak Pakai – for companies and institutions, including foreign individuals.

Government Decree #41 stipulates that the maximum period for ‘Hak Pakai’ ownership is 25 years, but this can be extended for another 20 years. It also adds that a foreigner can buy a strata-titled residential property, which is built on land with a ‘Hak Pakai’ title.

On this basis, a foreign individual is legally allowed to buy, for example, a house that is built on a single parcel of land, but they must convert the title of the property to a ‘Hak Pakai’ title to comply with the laws.

However, it is extremely difficult for foreigners to buy high-rise residential properties, such as condominiums, as almost none of these projects are built on land with a ‘Hak Pakai’ title and it is difficult to convert the title of such land to a ‘Hak Pakai’ title, because the land is owned by many individuals (common ownership) and not by one sole individual, as it is in landed housing projects.

About the author
Anton Sitorus is the Head of Research for Jones Lang LaSalle in Indonesia.

Posted in Indonesia, Residential Research | No Comments »

It’s All About Brand…And Price!

Thursday, August 2nd, 2012

Finally, the long-awaited news has arrived. Ikea will be coming to Jakarta!

In March, the Swedish retailer reportedly signed an agreement with Hero Group to establish Ikea stores across Indonesia. The first outlet is scheduled to open in 2014.

For the past six years, the market has been talking about Ikea’s foray into Indonesia. The world’s largest furniture retailer has many fans in Indonesia and any indication of a possible opening in the country has always sparked hot discussions amongst aficionados. Meanwhile, developers, landlords and local retailers are competing to secure the potential opportunities created from Ikea’s arrival.

The arrival of more foreign retailers to Indonesia is a reflection of the maturing retail industry in the country, a result of the rising middle class, rapid urbanisation and a shift from a traditional to a modern lifestyle.

Ikea and other European brands such as Mango, Zara, Topshop, Debenhams, FitnessFirst, Pizza Marzano and Tony & Guy are considered latest lifestyle icons in the city. Their Asian peers such as G2000, Muji, Sogo, Metro, Lotte, Bossini, Charles & Keith and Baleno are also perceived in the same way. They have joined the growing Indonesian middle and middle-up class retail segment, which was previously dominated by American brands such as GAP, Old Navy, Guess, NEXT, Nine West, DKNY, Ace Hardware, Starbucks, Nike, Coach, etc.

With higher purchasing power and better exposure to the outside world, Indonesia’s middle class demands a larger variety of better-quality products and services to support its lifestyle. While more and more people are becoming passionate about specific brands, they also like to try new things. These people want the latest styles for their homes, to taste international cuisine from the new restaurants, to shop at latest stores or to hangout at the new gym near the office, etc. This attitude has helped new brands grow their business in this market.

However, not every brand has a remarkable story. There are cases where new brands have failed in a relatively short period after opening, such as Harvey Nichols in Grand Indonesia Shopping Town. In other cases, several brands have suffered low sales and stagnant activity, and are just waiting for their leases to expire.

Despite having a high passion for famous brands and a new lifestyle, many Indonesian consumers remain price sensitive. Popular brands like Starbucks, Mango, Zara, FitnessFirst, Guess, GAP, NEXT, Charles & Keith seem to be well positioned among the locals due to the quality and good value for money, while Harvey Nichols was perceived by the locals as being somewhat ‘too expensive’ for its high-end segment, as compared to other boutique stores in the same league selling similar products. Beside, for luxury or high-end products, a lot of Indonesians often shop overseas such as Singapore, Hong Kong and Europe rather than in the country.

As for Ikea, with loads of loyal customers already in place coupled with the concept of affordable modern furniture, the brand has much potential to grow and expand in this country.

About the author
Anton Sitorus is the Head of Research for Jones Lang LaSalle in Indonesia.

Posted in Consumer Spending, Demography, Indonesia, Retail Research | No Comments »

Office Decentralisation In Jakarta

Friday, May 11th, 2012

Office development in Jakarta, so far, has been concentrated in the CBD. This area is bounded by three major streets (i.e. Sudirman-Thamrin, Rasuna Said and Gatot Subroto) forming a triangle, hence fondly known as “the golden triangle zone” among the locals.

In the initial phase of its development (back in the 1970s), the golden triangle zone was dominated by central government buildings, offices of major state-owned companies and foreign embassies. Later, other Indonesian enterprises and international companies began to locate their offices in the district with significant office development taking place during the economic boom in the mid-nineties. Since then, the golden triangle zone has continued to attract developers, investors and various corporations, and becoming what is now the central business district (CBD) of the capital city today.

And up until the present, the golden triangle zone, or the CBD, has managed to retain its status as the most prominent and prestigious business district in Jakarta.

However, along with the growing demand from various businesses and the development of Jakarta’s infrastructure, the city landscape has changed with the emergence of new commercial districts.

The most popular amongst them is the TB Simatupang area in South Jakarta. It is situated close to the upmarket residential districts of Pondok Indah and Kebayoran Baru (both popular with expats) and has excellent access via the outer ring toll road. It has attracted many corporate occupiers mainly from oil and gas, consumer goods and engineering companies.

Other growing commercial districts in Jakarta include Kemayoran and Slipi-Grogol. While Kemayoran (former site of the Jakarta international airport) has been designated by the city government as the future CBD, the area alongside Slipi-Grogol has grown as an alternative business location for small-to-medium sized companies, particularly in trading businesses.

Another district, which has been quietly developing into a commercial district, is the By-pass area, stretching from Cawang in the east to Priok in the north. Besides being right alongside the Jakarta inner city toll road, this area is also in close proximity to the seaport and has good access to the airport. Naturally, the area is popular among Indonesian industrial conglomerates like Astra and Gudang Garam for their headquarters and of late has also attracted more companies especially from the automotive, trading and logistics sectors.

While the golden triangle zone will remain as the primary CBD of Jakarta, these other commercial districts such as TB Simatupang, Kemayoran, Slipi-Grogol and the By-pass area will remain attractive as they provide the benefit of lower rents, higher flexibility in lease terms and better accessibility. Generally, banks, insurance, securities and professional services prefer the CBD, but with rising rents coupled with a lack of available space and the bad traffic situation, non-financial service companies will certainly consider these decentralised locations.

About the author
Anton Sitorus is the Head of Research for Jones Lang LaSalle in Indonesia.

Posted in Indonesia, Office Research | No Comments »

Are There Storm Clouds On The Horizon?

Thursday, March 15th, 2012

At a first glance, taking a look at the recent Asia Pacific GDP growth statistics you could be forgiven for thinking that there are storm clouds on the horizon. Across the board, since September last year all the major countries in AP have had their GDP forecasts revised downwards.

Looking at China, the market pundits are certainly flapping! The “engine of world growth,” announced just last week that they are lowering their growth target for 2012 – 7.5% versus the usual 8%! Also, the import numbers released certainly took commentators by surprise. China imports outstripped exports by a not unsubstantial US$31.5bn, the biggest trade deficit since 1998, not insignificant in an export led economy like China.

Should the alarm bells be ringing and should AP real estate investors be concerned?! Let’s ignore headline grabbing sound bites and cut to facts. The bottom line is AP aggregate GDP growth is actually set to increase over 2012. Regional growth in 2012 will improve on the back of increased growth rates in Japan and China. In China we expect to see fiscal and monetary policy stimulating the economy, whilst in Japan rebuilding activities post last years earthquake will help to improve the economic outlook.

For investors, the rest of 2012 is likely to bring good opportunities to acquire assets. The Japanese market in particular is certain to present interesting options. At the height of the GFC downturn, we initially expected to see a number of distressed Japanese assets getting pushed onto the market, but that just didn’t happen, banks were more lenient than expected and rolled over loan covenants to accommodate their borrowers. However, now that we’re seeing conditions improving, we do expect to see these banks starting to put more pressure on their borrowers to push these out to the market and these assets will present excellent opportunities for the cashed up international investors.

Asia Pacific is interesting for international investors because it offers a good balance of opportunities. For Core investors, transparent mature markets such as Australia and Singapore are available to tap into, whilst Hong Kong still remains attractive, all be it that year to date it’s been a very locally driven investment market. On the flipside, more interesting opportunistic high yielding plays are there for the taking in the fast growing but opaque markets of Indonesia and Vietnam.

To sum up, are there storm clouds on the horizon? Well, if you’re sitting in Asia Pacific, I suggest you pull up a deck chair and enjoy the weather. For those investors in a strong position, the opportunities and growth in 2012 will very much be there for the taking. If international real estate investors are to deliver the types of returns their unit holders are looking for, with snail pace economic growth in EMEA and a sluggish America, investors will need to look to Asia Pacific real estate to deliver their numbers and now’s a pretty good time to be doing so.

About the author
Roddy Allan is a Director, Asia Pacific Research for Jones Lang LaSalle, based in Hong Kong.

Posted in Asia Pacific, China, Economic Research, Hong Kong, Indonesia, Investment Research, Japan, Singapore, Vietnam | No Comments »

Jakarta Office: From A Tenant’s Market To A Landlord’s Market

Thursday, February 9th, 2012

The office market in Jakarta has suffered slow rental growth since the Asian financial crisis back in 1998. Since then, it has always been a tenant market until most recently.

When many companies closed down and left the country, office demand plunged into negative territory for the first time in 1998. Grade A office rents in the Jakarta CBD fell by over 40% from USD 24.30 per sqm per month at end-1997 to USD 13.90 per sqm per month by early-1998. Subsequently, the weak economic recovery coupled with limited demand from the remaining tenants led to a lethargic office market throughout the following decade. Vacancy hovered at over 20% and rents remained sluggish. Indeed, Jakarta CBD prime office rents in USD terms continued to soften from 1998-2005.

Signs of market improvement began in 2006 following a pick up in occupancy to above 80%. However, structural changes in the market happened only about two years ago. As one of the few countries that managed to escape the 2008 Global Financial Crisis (GFC) relatively unscathed, Indonesia’s economy continued to perform well, thanks to robust domestic consumption and growing middle class spending.

The positive outlook and massive potential of the economy also caused institutional investors to return to the once forgotten tiger economy of Asia, as evidenced by rising Foreign Direct Investment (FDI) and the phenomenal growth of Indonesia’s stock market. Along with this growing interest from local and foreign companies, demand for office space also increased quite significantly.

However, office developments were limited as developers were still focusing more on residential and retail projects, as was seen in the past two years. With high demand and limited new supply, occupancy jumped to around 95% by end-2011, leaving only 72,000 sqm of vacant space in the 1.5 million sqm market.

The increase in occupancy motivated landlords to raise their rental offerings quite aggressively. Last year, rents in the Grade A CBD office market rose by about 50% from 2010, the highest increment since the 1990s. That brought office rents back to the 1997 level of USD 24.30 per sqm per month. The ball has changed hands – from tenant to landlord.

Considering that additional supply over the next three years will be limited, we expect this rental trend will continue to be in the favour of landlords. Despite the potential impact of the lingering crisis in the Eurozone, the office market in Jakarta is likely to enjoy strong positive growth. As the continual corporate expansion meets tight short term space availability, it is projected that rents of prime office buildings in Jakarta CBD will grow by over 20% per annum over the next two to three years.

By regional standards, rents in Jakarta are on the lower side. That fact also provides room for further growth in the future.

About the author
Anton Sitorus is the Head of Research for Jones Lang LaSalle in Indonesia.

Posted in Indonesia, Office Research | No Comments »

Urgently Required: Affordable Condominiums

Thursday, November 17th, 2011

Despite the traffic congestion and high population (about 10 million people living within a 660 sq km area), many people are still attracted to Jakarta – the capital city of Indonesia. The city lights and the lucrative business opportunities together with the myriad of shopping spots, entertainment centres and a variety of educational institutions have drawn people to the capital, creating the urban density unseen in the past.

One of the major challenges faced by the city lies in the residential sector. Demand for mass market (i.e. middle-low and low-end segment) projects continues to outstrip supply as land prices surge on the back of limited development land. Traditional low density (i.e. landed house) development in the city is increasingly rare and like many other major metropolitan cities in the world, the Jakarta residential landscape is shifting towards higher density living (i.e. condominium development).

Since the 1990s, developers have been building condominiums in Jakarta. Currently there are more than 75,000 units in these condominiums, the majority of which serves the middle to upper class population. On the other hand, the demand in the mass market has not been adequately met despite over 50% of the total Jakarta inhabitants belonging to this income group who are in dire need of affordable homes.

A couple of years ago, Vice President Jusuf Kalla initiated the ‘Program 1,000 Tower Rusunami’ where the government invited state-owned companies and developers to build 1,000 towers of rusunami (low cost condominium) for eligible buyers from the middle-low income segment. Under this scheme, the government provided full support in terms of project permit assistance, infrastructure and tax incentives including down-payment and interest rate subsidies for loans. The reception was enormous reflecting the size of this segment.

However, the euphoria of the rusunami program did not last long as many developers were disappointed by the government’s lack of ability to deliver some of the incentives and assistance packages as promised to them. Consequentially, an alternative to the rusunami – anami was created by these developers. There was no subsidy or screening of buyers under this upgraded anami scheme. Despite the slightly higher prices, sales in anami developments in Jakarta have been quite strong, suggesting the huge demand for affordable city residential from the middle-low segment.

Jakarta surely needs more affordable condominiums like anami developments as another way to minimise the suburban sprawl. The massive development of suburban housing has generated externalities of heavy traffic congestion and inefficiencies – indirect costs that the city has to bear. Now is the time for Jakarta to look and learn from other neighbouring countries on how they manage the residential issue, especially their approach on the development of good and affordable residential homes including those for the mass market in the city. Ultimately, it will help increase the welfare of the city dwellers and also alleviate the transportation strain on the economy. It might be a long journey for Jakarta to be on par with modern and efficient cities like Singapore and Hong Kong, yet every single step how minute it may be, is a step in the right direction.

About the author
Fitrah Avianti is the Assistant Manager of Research for Jones Lang LaSalle in Indonesia.

Posted in Indonesia, Residential Research, Urban Development | No Comments »

Stuck in traffic? …buy a condo!

Sunday, September 25th, 2011

Jakarta is famous for its traffic jams, a thing that we, the citizens, are not proud of…not even a tiny bit! Those who’ve been visiting the city in the past couple of years may well agree with me, because I’m sure during your visit, you must have experienced it – at least once, if you’re lucky!

As a citizen, born and raised here, I have seen the urban environment changing from a “nice” to a ‘not-so-nice’ city.

Back in the early 80s, the neighborhood I grew up in was a small quiet district but not anymore. Today, when we leave our house we are greeted by cars lining up bumper to bumper with motorcycles filling up every available space on the street. All eager to get to their destination on time which in most cases is not possible.

Jakarta traffic is becoming a norm throughout the day almost anywhere.

Analysts have argued that the growth in vehicular population is far too high for the city at 9% per annum. An average of some 1,100 new cars and motorcycles join the traffic everyday. On the other hand, the road infrastructure hasn’t kept pace. Based on official statistics, the length of road in Jakarta has grown less than 1% per annum. Road users like I would agree that we have hardly seen any seen new roads being developed in Jakarta in the past five years other than the Jakarta Outer Ring Road. To the contrary, many roads in Jakarta have had their width reduced to support the development of the public transportation system “Busway”, with their own designated lane. This has created controversies and jealousy among other road users who are being sandwiched into fewer lanes. In short, the road is shrinking while vehicular population is burgeoning – the perfect formula for traffic jams.

This traffic phenomenon has shifted the housing choice of younger families from the traditional suburban house with a yard to an apartment or condo in the city. They choose to live in vertical housing near their workplace to avoid wasting their time in Jakarta’s traffic jungle – and it seems to work. Anecdotal evidence shows that the number of people buying a condo for own-occupation is gradually growing. Generally, in a typical average condominium project, the portion of speculative investors to end-users is 50-50. But now, while the portion of investors is slowly declining, the end-users are holding up.

In the past, people who could afford to buy condominiums would be perceived as rich. However, that is different today. With a growing economy which boasts of improved affordability among more people, the younger families are more able to buy a condominium and this has become a growing trend amongst Jakarta’s urban middle to upper class community.

The traffic jam in Jakarta has also been a major catalyst in generating the demand for city living. Without another viable alternative to the traffic issue, living in a city condo near the office is probably the best option. I am sure more people in Jakarta will be thinking about this in the future.

PS: to find more analysis and discussion about the city living concept in Jakarta, please read our latest Economic Insight issued in September 2011.

About the author
Anton Sitorus is the Head of Research for Jones Lang LaSalle in Indonesia.

Posted in Indonesia | No Comments »