Expanding Indonesia - More apartments being developed in response to demand

With continuing economic growth in Indonesia, giving increase to higher per capita GDP, the property market is still rapidly expanding, particularly in the larger cities including Jakarta (the economic and political centre of Indonesia). By next year, 46 new property projects will add almost 25,000 new apartments in Jakarta (‘strata title’, a term referring to the multi-level apartment blocks and horizontal subdivisions with shared areas), with a combined value of approximately IDR23trillion (almost USD$2billion).

With demand and values on the rise in Jakarta, vertical infrastructure is the most lucrative and efficient strategy to engage in property business. The majority of new apartments currently under construction, target Jakarta’s middle class segment affording to spend approximately IDR200 to 500million (USD$17,000 to 43,000), on an apartment. Analysts claim there are no signs of a property bubble arising in Indonesia. The main argument being that the majority of new apartments (around 70%), is purchased by end-users rather than speculative buyers.

Last year, Indonesia’s central bank (Bank Indonesia) was concerned over the possibility of a property bubble as prices rapidly increased. Therefore, the institution put new minimum down payment rules for second properties, into effect. The loan-to-value (LTV) ratio for the purchase of a second property was lowered to 60% and 50% for purchases beyond the second property, meaning that buyers are required to pay a down payment of 40% for a second property and 50% for additional homes. Bank Indonesia also gradually raised its benchmark interest rate (BI rate) from 5.75% during June 2013 to 7.50% in November 2013. This move was principally aimed at curbing the country’s current account deficit, supporting the rupiah and combat inflation. 

Data from Colliers International Indonesia report that next year, the number of new apartments in Jakarta will increase by 18.98% to 24,954 units from 20,889 units this year. However, this expansion of new apartments is lower in comparison to the 38.63 percentage point growth currently recorded. Slowing expansion is caused by the slowing economy (including higher interest rates), together with uncertainties delivered by the legislative and presidential elections recently held this year. Earlier reports indicated that numerous property developers delayed projects that should have commenced this year.

The property developers mainly finance construction through internal cash reserves, pre-sales of the apartments yet to be built, plus bank loans. Colliers reported that the average price of apartments in Jakarta was IDR25.5million (USD$2,179) per square metre during the second quarter of 2014, having increased 5% from the previous quarter, or 16% compared to the second quarter of last year. Based on region, prices in South Jakarta have increased highest at 23% (year-on-year), during the second quarter of this year.

West Jakarta is the current most popular destination to construct vertical property. Next year, 8,494 new units are to be added to the region. The following second-most popular region is North Jakarta and will have 6,382 new apartments added next year.

Apartment demand in Jakarta is still high (which is visible in 70% of buyers being end-users). This is in part owing to people’s desire to live in proximity to their offices.