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.