Thu, 30 Jan 2003

Demand for luxury condos to soar

Sari P. Setiogi, The Jakarta Post, Jakarta

The supplies of luxury condominiums for the middle and upper- end of the market in Jakarta will remain flat this year, while demand for them is likely to soar.

Willyanto J. Halim, a property analyst with consulting firm PT Procon Indah, told reporters that supply would remain stagnant at 1999's level of 1,946 units due to the absence of new developments.

Luxury condominiums account for only about 8 percent of the 25,633 condominium units currently available in the city. Most luxury condominiums are located in the heart of the city with easy to access to places of work and other parts of the city.

Willyanto said that demand was likely to surge significantly, so that more than 80 percent of the supply would be sold out by the end of this year, as compared to 72 percent at the end of last year.

He explained that this year's higher demand would be caused by an improvement in market confidence and the presence of pent-up demand, a side effect of the economic crisis that began in mid- 1997.

The crisis discouraged potential consumers from buying luxury condominiums, each of which costs US$1,200 or more per square meter, while the rupiah's value has decreased from Rp 2,400 per U.S. dollar in the middle of 1997 to about Rp 9,000 at present.

Over the last few years, the growth in demand for condominiums was also slowed by the imposition of a 20 percent luxury tax on sales.

"There is a lot of cash in the city and most Indonesians now prefer to put their money in property as an alternative investment. Also, better education means that they place more value on the money they pay, and upper segment condominiums will be their choice," Procon Indah's chief executive officer David Cheadle told The Jakarta Post.

Willyanto said the strong demand for luxury condominiums actually started late last year when developers were able to sell about 20 percent of the condominiums that they planned to construct this year and next year.

"The construction of most of the planned condominiums will be completed in 2005," he said.

The construction of the 55-unit Airlangga Residences condominium building in Kuningan, South Jakarta, he said, would be completed in 2004, while the 68-unit SCBD Suites, the 124-unit Pinnacle on Sudirman, South Jakarta, and the 180-unit Bellagio Mansion in Kuningan would be completed in 2005.

He said there should actually be one more project, the Thamrin Exchange Square with 184 units in Central Jakarta, but its construction was postponed due to an administrative problem related to the land.

Willyanto also said that the demand for luxury condominiums would be even higher this year if luxury sales tax were to be abolished.

However, developers tried to help buyers avoid paying the luxury sales tax by offering their condominiums under long-term lease (leasehold) agreements, under which buyers could occupy their condominiums for the same length as the 35-year term of a strata title.

Besides luxury sales tax, condominium sales are also subject to 10 percent value added tax (VAT) and 5 percent charge for land and building acquisition.