Jakarta: The Luxury Property Capital of the World

Jakarta: The Luxury Property Capital of the World

By Josua Gantan on 4:05 pm February 13, 2014.
Jakarta. Nowhere in the world offered a better return on high-end property investment in 2013 than Indonesia’s capital, a leading global real-estate consultancy based in London said.

“The growth of the economy and the property sector might get slower — it depends on the global outlook — however, we remain positive on the Indonesian market,” Hasan Pamudji, Knight Frank Indonesia’s associate director for consultancy and research, told Jakarta Globe.

The latest Global Cities Index report by Knight Frank showed that the high-end segment in Jakarta grew at more than double the pace of the next-ranked city, Dublin. Composite growth in Jakarta reached an extraordinary 37.7 percent in 2013. The Irish capital saw a 17.5 percent jump in the value of its luxury property.

“It is interesting to note, that without Jakarta the index would still have risen by a not-insignificant 5.9 percent in 2013,” Kate Everett-Allen said in the report. The overall index, which covers 30 global cities, was up 6.9 percent year-on-year and up 34.9 percent from the nadir of the sub-prime crisis in the second quarter of 2009.

Knight Frank puts Jakarta’s “phenomenal growth” down to meager supply and runaway demand.

“As of now there is a very limited supply,” Hasan said. “People don’t really build anymore in Jakarta; There is not enough land. Yet the demand for luxury housing is overwhelming and that makes the prices continue to soar.”

Consistent double-digit property inflation over successive years combined with a shaky rise in banks’ non-performing loan books caused the government to attempt to apply the handbrake last year to the capital’s house-price growth.

A new regulation passed in September, 2013, reduced the maximum loan-to-value on second and third properties to 60 percent and 50 percent, respectively. But Indonesia’s one percent and other cash-paying investors remained unfazed, Knight Frank said.

“The rise has taken place in spite of the cooling measures that Bank Indonesia implemented,” Hasan said. “Actually, the measures don’t really affect the luxury housing segment. The measures were meant to deter speculation and excessive borrowing from banks. To the very rich, this is not a problem.”

Under construction

Even as Jakarta boomed, prices in Hong Kong fell by 2.2 percent as a result of a number of cooling measures implemented in recent years, including the introduction of a stamp duty in 2010 and a subsequent increase to the tax on purchases in 2012. The segment declined by 0.8 percent in Singapore, driven in part by regulations capping mortgage repayments at a maximum of 60 percent of income.

The prevalence of cash buyers, according to Knight Frank, might indicate that the health of the sector in Jakarta has some way still to run, and there is no evidence yet of any impact on premium real estate from Bank Indonesia’s decision to raise the central cost of borrowing on five occasions since June last year — from 5.75 percent to 7.50 percent.

Prices increased 24.3 percent in the second half of 2013 against the modest by comparison, but still double-digit inflation of 10.8 percent in the first half.

“Why is the Indonesia property market performing so well? Because our own locals are the buyers,” Erwin Karya, associate director at Ray White, an Australia-based realtor with a significant Jakarta presence, told the Globe.

The acute depreciation of the rupiah, 26 percent against the dollar in 2013, may have drawn in more foreign funds into the sector. Acquisition of Indonesian property by foreign citizens is still prohibited — access to the market, while not legally straightforward, is possible for non-Indonesians, although not on the same scale of the archipelago’s Asean peers.

“In Malaysia and Singapore, foreigners are allowed to buy,” Erwin said. “Once foreign demands step in, the property market goes down. In Indonesia, the property market is strong because the buyers are locals, our locals have high demand for property.

“It must be noted that this has happened even when [Indonesian] economic growth is slowing and at a time when the property sector is facing more pressure, such as the cooling measures by the government and more restricted development plans.”

While the gloss was to an extent taken off investment-level upgrades to the country’s credit rating and other sources of fund inflows by a turbulent second half to 2013, Erwin said supply-side constraints would continue to buoy the market.

“Foreigners are confident of Indonesia’s growth. Investments keep coming in,” he said. “From a macroeconomic perspective, it boosts the property sector in Indonesia.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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