Tuesday, July 2, 2013

Crown Eco Capital Jakarta Fraud Management Solutions - COVER STORY: Jakarta races ahead despite challenges

PHENOMENAL: Jakarta’s rapid growth is set to continue despite glitches

At the end of 2012, practically every property report had cited Jakarta as the top investment destination in Southeast Asia in 2013. Foreign direct investment grew by 39 per cent in the first half of 2012 and demand for property in Jakarta was strong, resulting in year-to-year office rents jumping by 29 per cent. Despite difficulties such as securing bank loans and getting reliable local partners, analysts and market observers enthused that Jakarta held significant promise.

Fast forward six months later, has Jakarta fulfilled its promised? Apparently yes, as indicated by recent news reports. Despite the challenging backdrop of a massive 44 per cent hike in petrol price, a Sydney-based property developer, Crown International Holdings Group is looking to tie up with a local developer to build a Jakarta-based apartment project valued at a minimum of Rp1 trillion. It looks like there is no let-up to the hot property market there.

Crown believes the apartment living trend in the Central Business District (CBD) will grow more entrenched in the coming years due to the bad traffic condition in Jakarta. Traffic is so bad that nowadays people prefer to stay in apartments close to their workplaces. That way, they save 2 - 3 hours being stuck in traffic jams on a daily basis. They even shop in malls close by. The target market is rich local Indonesians buying for their own occupation or buying to let to the large expatriate market.

Crown’s analysis of the market is supported by statistics. Jakarta saw a 38 per cent jump in its residential luxury market prices last year, primarily in what is termed as “critical housing” – apartments in CBD that are in very high demand due to the overcrowded and congested conditions in the teeming metropolis of 12 million. 

Huge pent-up demand

The Indonesian economy has been chalking up growth of about 6 per cent every year for the last five years, so there are more people with money but so are there more of the middle and lower income groups as well. This has increased the demand for property, says Andri Marsetianto, a property analyst who does consulting work for a state-owned company.
“Apartments are certainly the new property of choice because they offer security, safety and easy access,” he continues.

The target market is usually local young professionals or the newly rich who can afford the Rp30 million price tag in downtown CBD area. These posh areas are where you can see imposing skyscrapers, trendy shopping malls and fancy condominiums. And the number of these apartments being built is increasing even as their prices and rentals climbed in double-digit figures.

This is because of a huge pent-up demand, says Andri, backing up his statement with his observation that in Jabodetabek, he saw every new housing cluster (168 units) and apartment (about 300 units) launched sold out within a day with a coupon system.

“Apartments still dominate here because of the lack of prime affordable land. The prime locations are CBD Sudirman, Kuningan, Menteng, Senayan, Kebayoran Baru, Pondok Indah, Kemang, and TB Simatupang in South Jakarta. MT. Haryono in East Jakarta, Pantai Mutiara and Kelapa Gading in North Jakarta and Puri Indah in West Jakarta,” reveals Andri.

The property analyst adds that the building boom will be sustainable because of the increasing population, development of commercial properties such as malls and offices in the surrounding areas and the building of new transport infrastructure such as monorail, mass rapid transit (MRT) and new toll roads. “There is also a belief among the communities in the West and North of Jakarta that investing in properties is not just for capital gain and business support but also for feng shui purposes.”

Double-digit growth

According to Colliers International, the average apartment price in the CBD has climbed 26 per cent year on year from Rp25.9 to 32.6 million per sq m while prices of apartments similarly jumped in South Jakarta by 25 per cent year on year from Rp17.8 to 22.5 million per sq m.
The average asking rental rates in the CBD has also climbed significantly by 11.2 per cent quarter on quarter from US$23.69 to US$26.34 per sq m per month.

In the office sector, during the first quarter of 2013, the average asking base rental rates in the CBD continued to rise increasing by 8 per cent (US$) and 6 per cent (Rp) QoQ. This increase in rental rates was mainly driven by the scarcity of good quality office space with only a 3 per cent vacancy rate in the CBD.

The retail market continues to perform well too with average asking base rental rates for all class shopping centres in Jakarta rising 3 per cent QoQ to Rp468,084 per sq m per month. Rental rates are expected to rise further as retail space is quite limited in 2014 - 2015.

In the industrial estate sector, during the first quarter, overall land prices in all regions saw a 10.5 per cent increase on average.

Jumping in or not?

With such a red-hot market, surely more foreign developers would follow suit?  A query to SP Setia Bhd elicited this response, “Currently, we have a representative office in Jakarta and are open to any opportunities that may arise in the future”, which was essentially the same thing that they said when they first opened their representative office back in April 2012.

Perhaps there is another side to the story? A source commenting on Crown’s proposed entry into the Jakarta property market said that it’s a good development as it would “raise up the quality and credibility of developers in Indonesia which still leave much room for improvement.

“Hopefully with foreign competitors, other than better quality developments, a sense of responsibility and credibility can be heightened. There is no check and balance or governance that oversees the property market in Indonesia. Consumers have no protection against the risk of local developers defaulting on delivery of their projects.”

This may sound good for developers, both local and foreign, but an expatriate who declined to be named said whether they are developers or buyers, the truth is that in many areas in Indonesia, the justice system still favours the highest bidder, and if foreigners are pitted against the locals, usually the locals will win.
Hazy ownership laws

Hence, if you ever get into a legal wrangle in respect of your property in Indonesia, don’t count on the merit of your case. As it is, the law on foreign ownership of property is still not very clear.
Any foreigner who wants to buy property in Indonesia must have a temporary stay permit (Kitas) or permanent stay permit (Kitap) and fulfill several related rules. Foreigners have rights over property for a maximum of 25 years only which could be extended up to 70 years.

There are however several other ways for a foreigner to invest in property in Indonesia. The safest is by forming a foreign investment company (PMA), which can own titles to build on or utilise land. The PMA can also be used as a legal entity through which nominee agreements can be made.

With this, a foreigner can nominate a “trusted” Indonesian citizen or company to buy freehold land for them, and then use a number of documents to ensure that the foreigner still retains his right over the property. The documents include a contract (rental or purchase) transferring the property to the nominee, a loan agreement that shows that the foreigner has “loaned” the purchase price to the nominee, a “Right of Use” agreement which enables the foreign investor to use the land and a Power of Attorney which allows the investor the authority to sell, transfer or dispose of the property as well as to represent the nominee in any dispute regarding it. Although this method sounds legitimate, it is not a 100 per cent guarantee that in the event of a dispute with the nominee, the foreigner’s rights would be protected.
 Traps for unwary?

Thus, despite the overwhelming promise of the Jakarta property market, it is still full of traps for the unwary. At the same time, it is not easy to get a loan in the relatively under-developed mortgage market.
Don’t forget too the many unsavoury aspects of a fast industrialising country which is overcrowded.  There are many serious environmental issues such as illegal deforestation, over-exploitation of marine resources, wildfires that cause heavy smog as is happening right now and pollution that comes from traffic jams, etc.
Andri is however quick to point out that the traffic jam problem is a multi-dimensional problem, because it relates to the economic growth in Jakarta, the increasing numbers of cars and motorcycles coming to Jakarta, the flood, the need for proper mass transportation, etc.

“Maybe the MRT and monorail cannot resolve the traffic situation, but they can reduce the traffic congestion over time. The local government of Jakarta should also impose a moratorium on new malls to reserve more supply of land for public facilities and green lung areas. It’s also becoming a trend now for big developers to incorporate green features into their developments.”

In the final analysis, Andri feels that property is still a favourite investment instrument for the middle class in Indonesia during these times of rapid growth. The price in general is still lower than in Malaysia and is one eighth the price in Singapore. That being the case, it will be some time more before Jakarta’s rapid growth cools off or becomes unsustainable.

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