Apartments abound, between necessity and prestige

Burhanuddin Abe, Contributor, Jakarta

An apartment seems to be the right choice for those living in major cities. In the next few years, as traffic congestion in Jakarta becomes increasingly intolerable and every second is money, for people with money living in an apartment will no longer be an option, but rather a necessity.

It is true that apartment ownership today is still largely confined to investors wishing to lease their apartment units. However, leasing apartments or condominiums is not really lucrative given the oversupply in the lease market.

The reason? Lots of expatriates, many of whom live in apartments, have left Indonesia since the economic crisis hit the country in 1997.

Who needs these apartments now? The trend is that apartments, formerly bought as investments, are being used by the buyers themselves.

This trend notwithstanding, more and more apartments continue to be put up in Jakarta and all offer their own concepts and attractions. On Jl. Setiabudi, for example, The Peak, an apartment compound in twin buildings, each with 55 floors and located about 150 meters from Chase Plaza on Jl. Sudirman in Central Jakarta, is under construction. Interestingly, over 70 percents of the units in The Peak have been sold.

Likewise, the developer of Menara Gading Apartment, located in Kelapa Gading, has said that 70 percent of units in three towers that will be completed in December have been sold. Half of the units in the other four towers, which will be handed over to the buyers in March 2006, have also been sold.

On Jl. Karet in Central Jakarta, you can find the twin apartment complexes of Sudirman Park. In Mayestik, Kebayoran Baru, South Jakarta, five apartment towers called The Pakubuwono Residence are under construction.

For both Sudirman Park and The Pakubuwono Residence, developers say over 50 percents of units have been booked. Other apartment complexes in Jakarta that have been well received include the Park Royal, Kempinski, Da Vinci, Four Seasons, Bellezza and Bellagio.

According to data from the Indonesian Center for Property Studies (PSPI), between 1999 and 2004 about 35,000 apartment units were sold. "Only" 25,000 apartment units were sold between 1976 and 2001. Total capitalization of apartment projects that were marketed in the five years between 1999 and 2004 reached no less than Rp 28 trillion.

According to a report in the Jakarta Quarterly Property Market Review, released by PT Procon Indah, in the fourth quarter of 2004 a number of developers have intensively sold their apartment projects on a presale basis. These include Puri Jimbara and Lotus Palace, both located in North Jakarta and supplying a total of 125 apartment units, the construction of which will be completed in 2005. What about next year?

For 2006, new apartment compounds ready to enter the market include Mediterania Garden Residence 2 in West Jakarta, which boasts 3,000 units, Hollywood Residence Tower 2 in South Jakarta, which will have 311 units, and The Thamrin Nine Residence in Central Jakarta with 133 units.

Cibubur, whose population density has been increasing, will have The Times Square Residence, a 600-unit apartment compound that will enter the market in 2007. Other apartment projects that have also been intensively marketed include Graha Cempaka Mas, Kondominium Rajawali, Apartemen Laguna and Apartemen Riverside. It is no exaggeration, therefore, to say that Jakarta fairly teems with apartments.

Surprisingly, although these apartment units generally cost between Rp 2 billion and Rp 30 billion, they sell like hotcakes. It would be interesting, in this context, to find out just how rich the people are who snap up these luxury apartments.

A property broker in Jakarta has his own thoughts on the matter: The higher the price of an apartment, the more sought after it will be. When buying an apartment, a rich buyer considers the prestige related to the apartment, not the price. Even if an apartment is very expensive, he will buy it.

"It is obvious that some urban people have shown a strong interest in staying in an apartment because if you live in an apartment, you can avoid traffic congestion and enjoy your life comfortably with your security and privacy well maintained," said the executive director of PSPI, Panangian Simanungkalit.

From a developer's point of view, a simple calculation will show that the break-even point will be reached when 40 percent to 50 percent of luxury apartment units are sold. With such alluring profits, a number of property businesspeople like Ciputra, Agung Sedayu, Tan Kian and Alex-Melinda Tedja have become engaged in the apartment business.

However, not all developers enjoy a profit from their apartment projects. There are several factors to consider, according to Ahmad Gozali of Auto Cyber Center, especially the point that the apartment business in Jakarta is close to its saturation point.

That does not mean, however, that investing in apartment developments is no longer a good idea. It has to be borne in mind that apartment compounds are not evenly spread across Jakarta and, also, that traffic congestion in the capital has become increasingly intolerable.

"This simply means that consumers will be segmented on the basis of location. In this context, location becomes a very important consideration to determine whether or not a property investment is still prospective," he noted.

Given this, it is clear that some areas, particularly the buffer zones around Jakarta like Bekasi, Tangerang and Depok, are still good bets for property investment. The key is the right choice of location. Using the same analogy, Bali is also an attractive place for property investment, especially if the property has its own uniqueness and is run by a bona-fide developer with strong management.

The First Quarter 2005 review issued by Coldwell Banker Commercial indicates about 85 apartment units in Jakarta were leased during the first quarter of this year, increasing the cumulative leased units to 7,776.

According to the report, occupancy level during the first quarter of 2005 was stable at 73.25 percent, an increase of less than 0.5 percent over the level at the end of 2004. Apartments in prime locations posted an 80.67 percent occupancy rate, while those in non-prime sections settled at 69.71 percent.

Apartment rentals, the report says, remained relatively stable in the first quarter, ranging from US$2.84 to $27.06 per square meter monthly. Supply will continue to outstrip demand. The fact that many condominium units have been unloaded to the releasing market will further increase supply.