Apartment sales boom

Apartment sales boom

The Nov. 17 regulation issued by the public housing minister
on the sales of apartments should be welcomed as an effort to
protect the interests of consumers. We are not sure, though,
whether the ruling, which we think should have been issued last
year, will be effective enough to prevent a bust, as predicted by
many analysts, in the apartment market boom. The fact is that
based on the projects under construction and preparation, the
supply of apartments is estimated to double this year to more
than 5,000 units and to skyrocket to about 35,000 units by 1997.

Indonesia, like other countries, has a fair share of its own
boom-and-bust cycles in the property market. We don't want to be
the purveyor of a grim message, but given the trends within the
apartment sales boom in Jakarta which started in 1992 as a result
of the introduction of the strata-title system, we are afraid
that the seeds of a bust have been sown. Whether the bust will
occur or not will depend largely on whether the long-expected
government regulation allowing foreigners to buy strata-title
apartments is issued next year or not.

We think there are several factors besides the introduction of
strata-title ownership, which have fueled the apartment market
boom. The first factor, which is simply sound, is the increasing
number of middle-income people as a result of the robust growth
of the business sector.

The second factor is the worsening traffic conditions in the
city. Owning a house and land near the central business district
is only a dream for most people, but buying a lower-priced house
in the suburbs means daily punishment in the clogged traffic.

The other reasons are the declining mortgage rates and the
bank lending spree fueled by the sales boom. Moreover, lending
that is secured by property is relatively safe. The dramatic
increase in licensed domestic and foreign investment projects has
further fueled investor interest in apartment housing, assuming
that the expatriate population will surely rise along with the
reinvigorated pace of investment.

The problem is that the boom has caused excesses in that many
buyers, either investors or intending occupiers, have put up
deposits for property which exist only in architects' plans. It
is indeed amazing to observe how many people have rushed to pay
deposits during the pre-sales launch period without knowing what
strata title really means. Most buyers snapped up apartment units
for prices of US$55,000-$150,000 without bothering to ask for the
assistance of a lawyer to read the contract provisions. Many of
them don't even know what the so-called owners' association,
which is supposed to rule over the order of their living in their
apartments, means.

The sales boom naturally has tempted a number of developers to
take advantage of the ignorant buyers and launch pre-sales for
apartment projects which have not even obtained licenses (in
total 11 permits are needed) from the government. Worse still,
some developers have joined the boom by building high-rise
apartments amid residential areas outside the central business
district.

Set against these unhealthy trends and the potential problems,
we think the public housing minister's regulation will help to
bring order to apartment housing development and marketing. This
is especially so because many of the apartment buildings which
have been pre-sold will not be completed for the next year or
two. Or at the very least, the ruling will be able to contain any
damage that might be incurred with a sudden market downturn.