The domestic property market has slowed down amid the global financial slump, with industry players erring on the side of caution as they anticipate the prevailing situation will last a while longer.
Indeed, the current global crisis has led to economic uncertainties characterized by a pessimistic outlook on the global economy. While the US economy is fading, Europe has been marked by the collapse of big companies forcing demands for bankruptcy protection.
A wind of change is blowing in the structure of the world’s economy as Asia is now en route to becoming the center of business activities. But this does not mean Asian countries are released from the shackles of economic hardship.
Just like in Singapore and Hong Kong, the current global economic setback still has the potential to erode Indonesia’s economy, despite Indonesia being better prepared than it was in the late 1990s, when a regional financial crisis struck the economy hard.
Owing to uncertainties about how to stem the downturn and the heated political climate upon the general elections in April 2009, a few developers have been facing project delays.
Banks nowadays are very selective when providing funds for property projects.
The banks base their decisions on whether to lend or not on a number of macro-economic indicators reported during the third quarter of 2008, where inflation soared to its record level over the last three years.
However, as reported in the second quarter of 2009, the situation has improved as more favorable activities have been recorded in the financial market.
The IDX Composite Index rose from 1,434 in the first quarter to 2,027 in the second quarter and 2,185 in July this year.
Aimed at stimulating national economic growth, Bank Indonesia has since last December gradually cut its key interest rate to its current level of 6.50 percent. In July, the rate stood at 6.75 percent as compared to 7.5 percent in April.
During that period, a lower inflation rate and a strengthening of the rupiah against US dollar were also recorded.
Coupled with a conducive environment brought about by the recent presidential election, especially with the victory of current President Susilo Bambang Yudhoyono, the improved political and economic situation has the potential to bring optimism to property players.
Correspondingly, property players are confident in the condominium market. A survey conducted by Procon shows 27,350 condominium units were scheduled for completion between now and 2011.
Even though 3,500 condominiums are still waiting to be sold, the current completed projects have brought the transaction level to 91 percent.
As reported in the second quarter of 2009, the take-up of ongoing condominium projects was 1,850. The occupancy rate registered a slight increase compared with the previous quarter, from 64.8 percent to 66 percent.
Such improved economic indicators may not be enough to weigh against the property market prior to the global crisis. But the market during the second quarter showed signs of progress with regards to leasing activity.
The Jakarta rental apartment market experienced a jump from 210 units available for rental in the first quarter, to 600 units in the second quarter this year.
With more units available, occupancy rates for Jakarta’s rental market remain stable. In the second quarter, the occupancy rate stood at 64.3 percent, a slight increase from the previous quarter at 63.8 percent.
The Central Business District (CBD) office market meanwhile recorded a take-up of 43,500 square meters; a slight increase from the previous quarter with 26,800 square meters.
Currently, although still relatively soft compared to before the global crisis, office leasing is considered as the most active sector, with transactions recorded coming from the relocation and expansion of domestic and multinational companies.
Many global firms operating in Indonesia have taken advantage of Indonesia’s current economic situation to upgrade their offices by relocating to better buildings in more strategic locations.
As Jakarta is currently one of the cheapest locations among 114 countries – according to the 12th annual “Global Occupancy Cost: Offices 2009” report – property players seem to remain optimistic about the city’s office space market and its future prospects.
Both tenants and landlords are aware of the value being brought to the table. Many prospective tenants are continuing to consider taking advantage of the current soft state of the market, opting to stay, expand or relocate.
A considerable number of landlords are correspondingly looking for “pre-commitment” tenants by offering aggressive rental rates.
The aggressive pre-committed offers are usually attractive in terms of pricing, be it in the office space or condominium market.
However, regardless of the offers, prospective tenants or condominium buyers should consider only trustworthy developers with outstanding track records.
Published in The Jakarta Post on August 7, 2009. By Hendra Hartono, Procon’s managing director