Wed, 02 Jan 2008
Andhika Suryadharma, Analyst

For the average Indonesian, prices of land in the Jakarta CBD already seem sky-high. However, they are relatively cheap compared to other CBDs in the region, and there is potential yet to be unleashed.

We are at the start of 2008, a year most market analysts regard as likely to be a turbulent one. With a slow-down in the world's major economies forthcoming, emerging markets may become a safe haven. So why not invest in emerging market property?

To get a feel for the land situation in Jakarta from an international perspective, consider property prices in the CBDs of other major Asian cities.

According to the latest Asian property report from Jones Lang LaSalle, Tokyo's CBD holds the most expensive price per square meter among Asian countries, going for as much as US$34,000 (approximately Rp 310 million) per square meter.

Among cities in developing countries, the report puts the price of CBD land in Chengdu at $1,380, Delhi at $7,426, Bangkok at $2,513 and Makati City at $1,655.

Where does Jakarta fit in? Jakarta CBD is the cheapest of them all, at $1,340 (approximately Rp 12 million) per square meter.

Last year, the CBD in Jakarta experienced only a 3.1 percent year-on-year increase in prices, below Bangkok, which experienced a 3.5 percent gain, Delhi (72 percent) and Makati City (19 percent).

It is interesting to note that land in the CBDs of the latter two cities has a higher capital value than land in Jakarta, while Indonesia ranks higher than both the Philippines and India in GDP per capita (based on recent ADB data). This raises some questions about what factors determine the property value of CBDs.

Location, certainly, is among the main factors. The closer an area is to the center of day-to-day activity, the more expensive it becomes. However, that alone does not determine the price of capital value.

There are also factors such as supporting facilities, which involve accessibility to the CBD area. Examples are the CBD areas in Singapore and Hong Kong; one reason those areas are among the most expensive in the world today is the transportation facilities they offer.

You can easily reach the CBD in both cities using a variety of transportation modes, including Mass Rapid Transportation, buses, taxis, and even by bicycle or on foot. It is comfortable to get to your office by foot in Hong Kong, and it is also safe.

Another factor is tenants. Most of the high-ranking CBD areas are filled with major financial institutions and multinational companies. In Hong Kong, for example, major banks and brokerages line the Hong Kong area where the stock exchange resides. The more exclusive the area becomes, the higher the value of the land.

So what is the Jakarta CBD lacking? The tenants here are prestigious enough; it's the facilities that fall short. In terms of transportation, the busway is a good start but obviously it's not enough; a city railway system is also needed to build a transportation system accessible to everyone, in which safety for commuters is a priority.

Apart from that, there are also risks in obtaining land. Besides the difficulties in land clearance, the licensing of land ownership has been an issue, given the many reported cases in which more than one certificate is issued for a single piece of land. Hence there is the need to reduce regulatory uncertainty in order to make investments in CBD property less risky.

So, all in all, is land in Jakarta a good investment? We would say yes. Obviously a lot needs to be done, and this will need time. Transportation facilities should be upgraded, clogged traffic should be relieved and land ownership uncertainties should be minimized.

But land here is still cheap relative to the region, and with economic growth at above 6 percent and reforms underway, Jakarta should eventually catch up with other Asian cities in terms of capital values.

The writer is an equity analyst at PT Bahana Securities.



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