Apartments abound, between necessity and prestige

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.