INDONESIA EYES RECOVERY

LET THERE BE LIGHT

Indonesia’s real estate market remains moribund following the pandemic and years of stagnation before it. But strong housing demand and bright economic tidings offer grounds for optimism

BY GEORGE STYLLIS

PROPERTY PRICES IN BALI HAVE SLUMPED, BUT THE DROP OPENS BUYING OPPORTUNITIES FOR INVESTORS

The last two pandemic-hit years have given time a bendable, amorphous shape. Indeed, it’s hard to believe that there was ever a juncture when Indonesia’s property market was among the hottest in the world. The Covid-19 era has certainly kicked any chance of an imminent strong rebound into the metaphorical long grass.

The doors have barely opened for the past two years at sales showrooms in Jakarta. Sales weren’t exactly brisk before the pandemic hit, but they fell off a cliff in 2020.

“Demand for housing dropped about 80% since Covid,” says Ferry Salanto, head of research at Colliers Indonesia.

The pandemic accelerated a trend that had been well established following the tailing off of the industry’s boom years as one of the world’s liveliest property markets at the turn of the decade. Indonesia made a startling comeback after the Asian financial crisis of the late 1990s and saw its real estate market boom. The surge was driven by robust demand for commodities like coal and a resurgence of trust in its banking system.

Prices went parabolic as the boom reached its peak in the 2012-2014 period. Units that were going for a song some five years earlier like a three-bedroom apartment in the high-end Regatta complex in Jakarta then tripled to around IDR8billion (around USD550,000).

“The Jakarta real estate market has been one of the strongest in the world,” David Cheadle, managing director of the Indonesia office of Cushman & Wakefield, told the FT in 2014.

But demand and prices dropped as the economy cooled and the industry began a period of consolidation leading to a string of sluggish years.

TOURISM IS SLOWLY RETURNING TO INDONESIA, BUT NUMBERS PALE IN COMPARISON TO PRE-PANDEMIC TIMES

TOURISM TONIC

Hospitality in Indonesia is set for a boost as new hotels prepare to launch following an easing of restrictions. Tophotel Projects estimates 21 new hotels will launch this year, bringing with them 3,173 keys. Among the biggest launches will be Banyan Tree Escape, a luxury boutique property scheduled to open in the second quarter in north Ubud, Bali. Swiss-Belhotel will launch its first property, the 25-villa luxury Maua Nusa Penida, also in the second quarter. In the third quarter, Kimpton will make its debut with the Naranta Bali, a 50-villa boutique resort near the Bali National Golf Club. The planned launches came as tourist numbers rose to 336,000 between January and February amid an easing of restrictions, with Australians accounting for the largest number of visitors. “Major airlines from Australia are resuming commercial flights to Bali for international travellers which, in 2019, represented nearly 16% of the total visitor arrivals on the island,” says Julien Naouri, vice president of JLL Hotels and Hospitality Group Asia Pacific.

The need for housing in Indonesia is still very huge, and this creates an opportunity for property in the country compared to commercial asset classes

Shortly before the pandemic hit, residential prices in the country’s 14 largest cities fell by 1.98% during the year to the third quarter of 2019 as the Indonesian economy continued to labour.

In 2020, economic growth contracted for the entire year for the first time since the Asian financial crisis as the country grappled with soaring case numbers of Covid-19.

As a result, residential property sales fell by 11.6% in Q4 2021 from a year earlier, following declines of 15.2% in Q3 and 10% in Q2, according to Bank Indonesia.

Among the hardest-hit sectors has been residential high-rise. According to JLL, the demand for units at the start of 2022— though slightly better than in the previous quarter—remained weak, with sales below 300.

“Middle to lower-grade demand remained sustainable due to support from a larger customer base and more affordable units, compared to the upper-grade market where sales activity remained slow,” stated a recent report.

“Developers continued to target potential new customers with different strategies, combining online and offline marketing approaches, offering greater flexibility and extending various promotions, such as attractive payment terms and other gimmicks to boost sales at year-end.”

In Jakarta, which remains the most active property market, no new projects were launched in the fourth quarter of last year. In Bali, a popular destination for foreign buyers especially, prices have reportedly come down by half since the pandemic. Bargains are especially prevalent in popular tourist areas like Jimbaran and Nusa Dua, where prices are at 2017 levels, according to estate agents.

The picture looks to be a bleak one, but analysts believe there are reasons for optimism.

A positive development has been a sharp rise in exports. According to official data, Indonesia’s exports rose to a new all-time high in March as Russia’s invasion of Ukraine triggered a surge in global commodity prices and expanded the nation’s shipments of steel, coal and palm oil.

According to a recent Bloomberg survey, the year-on-year rise in exports of 44.36% to USD26.5 billion in March beat all analyst forecasts.

JAKARTA’S PROPERTY MARKET MAY HAVE SLUMPED FROM ITS PEAK, BUT RECENT ECONOMIC GOOD TIDINGS FOR INDONESIA OFFER HOPE

ONE FOR MALL

Construction on a major new mall in East Jakarta is set to get underway in the second quarter of this year. The facility is comprised of 180 shops, with tenants including Apple and Zara. The Grand Outlet, a joint venture between Tuan Sing Holdings and Mitsubishi Estate, will cost USD90 million and be located around 3km from Karawang Station, one of four stops along Indonesia’s highly anticipated high-speed rail due to be completed by the end of this year. The mall, which is due to open in the fourth quarter of next year, will have a leasable area of 26,000 sqm and house big international brands including Starbucks, Marks & Spencer, Subway and Reebok. The mall’s developers say the project will benefit from Indonesia’s rising affluent consumer class. “Our presence in Indonesia combined with Mitsubishi Estate’s extensive experience in building and operating renowned retail projects will allow us to make this project a success and open the doors for future collaboration,” said William Liem, chief executive of Tuan Sing.

LARGELY UNDEVELOPED STILL, INDONESIA’S PORTION OF BORNEO IS EXPECTED TO CHANGE DRAMATICALLY WHEN IT BECOMES HOME TO THE NATION’S NEW CAPITAL

“The impact on our trade will depend on how long the Russia-Ukraine conflict will last,” says Margo Yuwono, head of Indonesia’s statistics office. Imam Wiratmadja, head of consumer acquisition at Rumah. com, a local property site, told Property Report that signs of recovery have started to emerge. The Q1 2022 Price Index reports a slow trend upwards. But it’s still slightly higher than that of Q1 2020.

“The supply index slowed, but we see this as an anticipation to Hari Raya, in which traditionally people will focus on celebration and holiday for a week or two in their hometown with their families,” adds Wiratmadja, referring to the national holiday which was held at the start of May.

Ferry Salanto at Colliers said the improving economic signs allied to the country’s emergence from the pandemic bodes well for a country with a massive population that still needs housing. “The need for housing in Indonesia is still huge, and this creates an opportunity for property in Indonesia compared to the commercial asset classes,” he says.

“The backlog is around 10 million. That shows you the scale of demand in Indonesia where we have a population of 300 million. The distribution of housing is mainly around the cities around Jakarta.” Whether the growth in commodity exports could see a return of the boom years of a decade ago soon is a moot point. Analysts believe it’s unlikely. “The housing market is in a trough, or at 6 o’clock,” adds Saltano.

“But we might get to 7 o’clock in the next year. It’s not much, but it’s progress.”

CAPITAL GAINS FOR MALAYSIA

Indonesia is hoping to give its capital a fresh start as it prepares to move from Jakarta to Kalimantan in late 2024. And businesses in neighbouring Malaysia are also eagerly anticipating the move as they prepare for an economic spillover according to a senior Malaysian official. Dr Maximus Ongkili, the Minister in the Prime Minister’s Department for Sabah and Sarawak Affairs, said the two states are poised to benefit from an increase in business and visitation due to the capital’s new location. “The shifting of Indonesia’s capital city can result in economic and development spillovers that will trickle down to Sabah and Sarawak through border economy,” says Ongkili. He added, however, that both sides need to develop their infrastructure and impose more robust security controls on the flow of goods and people crossing over the borders. “Bilateral cooperation between Malaysia and Indonesia has long existed, but there is still room for improvement,” he says. The capital’s initial relocation will start between 2022 and 2024, with roads and ports prioritised to enable access, said the finance ministry. It’s hoped the move will remedy Jakarta’s chronic congestion, floods and air pollution.