Build It, and They Will Come, Developers Find


FEBRUARY 04, 2015

Jakarta. Dessy Aderina and her husband bought an apartment on Jalan Pramuka in Central Jakarta when they started a family some three years ago.

It takes Dessy only 30 minutes to get to her office on Jalan Gatot Subroto, a pleasant change from the days before she got married, when she lived with her parents in Pondok Labu in South Jakarta and had to endure a commute of an hour and a half to work each day.

Dessy’s 45-square-meter apartment cost Rp 700 million ($55,500) when she bought it, but today a similar apartment in the same location would cost Rp 900 million to Rp 1 billion.

Dami Surindra, a teacher at a well-known school in West Jakarta, invested Rp 300 million in an apartment some four years ago instead of buying a new car like many of his colleagues. He sold the apartment at the end of last year for Rp 500 million, then used the money to buy another apartment in the Cengkareng area.

Despite the role played by speculators in influencing the market — one that was much reduced last year after new mortgage rules issued by Bank Indonesia — small investors have made money from their property purchases.

That underlying reality has attracted a number of developers to pick out niches they believe are set to see further gains. Most popular are apartments and commercial spaces. The enthusiasm is high enough that new players without a background in property have joined the property game, while more experienced developers are expanding.

The prime driver of all this activity is the rising number of middle-class Indonesians who see the economy continuing to improve, and with it, their purchasing power.

One of the new players is Warna-Warni Group, which previously focused on the outdoor media business and advertising. It has become an important player in Surabaya along with another new entrant, Puncak Group.

Deddy Widijanto, who runs car dealerships, coal mines and oil palm plantations, is developing Forzaland, which is building around 1,000 apartment units in Jakarta, and plans to start construction in Bali and Kalimantan soon.

The AKR Group of tycoon Haryanto Adikoesoemo, known for its logistics business, has invested in a mixed-used project in Kebon Jeruk, West Jakarta, through its subsidiary AKR Land, adding to its other property interests in Manado, Bandung, Surabaya and Bali.

Changing urban landscapes Indonesia’s cities are also developing new dynamics, as existing centers can no longer sustain growth and additional centers of activity emerge.

“The West Jakarta area has become a dynamic new business center due to the completion of the Jakarta Outer Ring Road,” says AKR Land president director Widijanto. “That has led many buyers to see more benefits in the area such as easy access to the city center and airport.”

AKR Land is now developing Gallery West, a mixed-used project in which premium apartments feature strongly.

“We have already sold about 70 percent of the space and the strategic location has been the competitive advantage,” Widijanto told GlobeAsia, adding that many people still see apartments as an investment instrument. Optimism about the economy is one factor driving sales, with many from the middle- to high-income groups keen to add new apartment units to their investment portfolios.

Others see good-quality apartments as a solution to Jakarta’s worsening traffic conditions.

Positive growth trend The government understands that the gap between supply and demand in property remains huge, with a backlog of 1.4 million homes per year, but developers can only deliver 150,000 homes annually. But while a large part of the demand is from people in the low income bracket, that group has been turned off by high interest rates.

Despite the slowdown in the general property market in 2014, a silver lining is now in sight, according to experienced players. They estimate overall growth of between 10 and 20 percent this year, with growth strongest for the apartment and commercial segments, with landed houses taking a back seat due to higher interest rates and tighter regulations on loans.

So while energy prices are falling, property prices will rise by around 10 percent and higher in high-demand sectors.

Indonesia Property Watch’s latest review of the market has found that while demand for lower-cost housing is slowing due to high price sensitivity, demand in the higher levels of the market remains stable.

IPW founder Ali Tranghada estimates that every percentage point rise in interest rates will cause overall demand to fall by around 4 or 5 percent.

That doesn’t mean there isn’t money to be made. State-owned builder Pembangunan Perumahan is targeting Rp 2.5 trillion in apartment sales this year, an 80 percent rise from last year. PP director Galih Saksono says last year the company surpassed its targets, and predicts it will do so again this year.

Its Ayomo apartment project in Serpong targets higher-income buyers, while other projects include Palladian Park in Jakarta, Grand Kamala in Bekasi, and Grand Sungkono Lagoon, Pavilion Permata Towers 1 and 2 in Surabaya will also see the development of the Sungkono Business Park. Developments are also planned for Bogor in West Java and the Central Java capital of Semarang.

New urban epicenters In Greater Jakarta, areas ripe for development now spread wide across the metropolis. Areas such as Cengkareng, Kemayoran and Tangerang municipality in Banten are new growth areas. Infrastructure improvements, especially the completion of the Jakarta Outer Ring Road (JORR), have been critical in driving interest.

“Tangerang has become the favorite place for developers due to its strategic position,” says Budi Kurnia, an independent property analyst.

Colliers International agrees that Tangerang now outranks other areas. Bumi Serpong Damai and surrounding areas, being developed by the Sinar Mas Group, are seeing dramatic development of education facilities. Kompas Gramedia’s Multimedia Nusantara University is located in the area, along with Atmadjaja Catholic University and the Swiss-German University.

Colliers also notes that in addition to apartments, about 1.2 million square meters of new office space is coming on the market between now and 2018 on Jalan T.B. Simatupang in South Jakarta.

That constitutes about 51 percent of total new supply in Jakarta, effectively shifting the axis of Jakarta business southward.

“Location, location, location is still the important aspect in the property business,” says AKR Land’s Widijanto.

Besides the T.B. Simatupang area, Kemayoran in Central Jakarta is also becoming a new central business district. Ciputra Group, after successfully launching Ciputra World in downtown Kuningan, is now heading to Kemayoran to kick off Citra Towers. The Rp 2 trillion project is a joint venture between Ciputra and Pembina Sukses Utama.

Lippo Group, the biggest player in the industry, is also working on new projects, including a Rp 250 trillion mixed-used property development in Cikarang, Bekasi, to add to its Kemang Village in South Jakarta and St. Moritz in West Jakarta.

Surabaya awakening Indonesia’s second city, Surabaya, faces similar problems to the capital as people look for alternatives to spending hours stuck in traffic jams. Apartment towers are burgeoning on its horizon. Good profit margins in apartments have also attracted local players like Puncak Group and Pakuwon Jati to push ahead with projects.

Colliers International director Ferry Salanto confirms the trend. The company’s latest research shows that the new rising star in the property business in the city is Puncak Group.

It is the largest apartment provider with a total of some 5,700 units, or 32 percent of the total supply of 18,000 units in the city. In 2014, the group supplied the biggest portion of apartment developments in the city, together with office and commercial space.

Last year it successfully completed three towers at its Puncak Permai development and another two at Puncak Kertajaya.

Another giant in Surabaya, the Pakuwon Group, best known for projects in Jakarta such as Gandaria City, has built a further 5,000 apartment units at its five projects: Water Place, Educity Condominium Regency, Grande Waterplace, De Residences and East Coast Apartments.

“The two players have different strategies. Puncak Group builds smaller projects but with a large number of units, while Pakuwon builds large projects with a smaller number of units, impacting its cost structure and prices,” Colliers’ Ferry says.

Another rising star in Surabaya has been Gunawangsa Group, which is best known for its business in telecommunication and advertising through its Warna-Warni trademark.

It has filled the city with 1,200 units, while Aktifitas Putra Mandiri has built another 1,100 and national player Ciputra is in fifth place with another 908 units. PP rounds out the field in the big league with some 700 apartment units completed last year.

Industrial estates booming The government’s intention to boost infrastructure will impact industrial estate development, and most players in that industry are targeting higher-income operations.

One significant player in the sector is Surya Semesta Internusa, the company founded by the late Benjamin Soerjadjaya. It plans to sell more than 60 hectares of industrial land, more than double the 28 hectares it sold in 2014. The company’s sales are helped by increasing land prices, but it is also not likely to run out of stock, having secured more than 2,000 hectares to develop in Subang, West Java.

Simon Chandra, an independent commentator on the property business, says the slowdown in industrial sales that occurred last year was mainly due to the political situation, as well as the increase in oil prices mid-year. Higher interest rates also depressed the market.

“I believe that in 2015 the political situation is more conducive and the lower oil price and the government program to boost infrastructure will boost interest in the sector. The only pitfall is that interest rates are quite high, but demand remains huge,” he says.

Simon indicates that some big names such as Kawasan Industri Jababeka and Surya Semesta Internusa will dominate the industrial estate sector this year. For portfolio investors, publicly listed companies such as Lippo Cikarang will make big gains and Jababeka will attract buyers because of its good supply of power, a major selling point for the company.

Development of industrial estates will also help development in surrounding areas, particularly residential projects for expatriates and the warehouse business. Simon notes that a range of new investors has been arriving since the end of last year to seek opportunities, with some already planning to relocate their production bases to Indonesia.

This will create a boom in some industrial regions such as Java and parts of Sumatra such as Medan and Pekanbaru as well as Batam Island. Other areas will remain dormant, waiting for the government to get started on providing better infrastructure.