Indonesia's property market enjoys robust demand

Indonesia's property market enjoys robust demand

JAKARTA (JP): PT Procon Indah, a leading property consultant company, is upbeat about the performance and future outlook of Indonesia's property market.

Craig Williams, senior technical advisor to Procon Indah, said yesterday that the country's strong economic growth and last year's high investment approvals have increased demand for various property sectors, especially office space and industrial estates.

"There is a strong correlation between the total investment approvals and demand for office space and industrial estates," Williams said when releasing the April-edition of Property Market Outlook, a quarterly magazine published by Procon, in association with international property consultant James Lang Wootton.

Last year the Investment Coordinating Board approved a total of US$23.7 billion worth of foreign investment projects, almost three times higher than the previous year. The value of foreign investments approved in the first three month of this year has reached $12.9 billion.

In the past, Williams said, a large portion of office space demand has been generated by local companies. With the growth of foreign investments, more multinational companies are expected to locate and expand their offices here.

Foreign investor interest in Indonesia's property has remained dominated by Asian investors, especially from Singapore and Hong Kong. Over 60 percent of the investment enquiries collected by Procon Indah last year was generated from these two countries.

This year, demand for prime office space for rental remains high, as demonstrated by the precommitment of almost 200,000 square meters of office space.

"This represents 70 percent of office space, which will be completed this year," William said, adding that the high level of precommitments will stabilize rental rates at $12.50 per square meter of office space per month.

In the industrial market, the average occupancy level declined by 2.6 percentage points, to 72.4 percent, from the previous quarter. "However, it is expected to bounce back very quickly in the next two quarters due to no new additional supply coming into the market in the period," he said.

As industrial estates in Bekasi are reaching a relatively high occupancy level, developers are now shifting their focus to new industrial estates in Karawang. Both are in West Java.

"These two locations are expected to be the most active development areas in the short to medium term," Bayu Utomo, head of Procon's research center, said.

Procon Indah foresees a surging future supply level for the retail market, which is the strongest performing market at the moment.

"There is a lot of construction underway for retail centers, and thus we expect a large number of supplies in the near future, but there is very strong precommitment also," Bayu said.

More than 70 percent of retail space, almost 200,000 square meters, which will be completed in the second quarter of 1995, has been precommitted.

A number of foreign department stores are among those who have given precommitments. Kelapa Gading Mall, for instance, has attracted Sogo Department Store of Japan. Mega Pasaraya and Senayan Square have clinched Seibu of Japan and the Metro Department Store of Singapore, to anchor the retail centers.

For apartments, Williams predicted that the demand will slow down in a short term because "the launching of condominiums and apartments has been in a huge race in the last two or three years."

Besides, Williams said, those who buy apartments or condominiums are only doing so for speculation. "In the long run, however, we will see a move towards apartment living, both in low-cost apartments and luxurious apartments."

In addition to the surging future supply level for most sectors in the short to medium term, the government's tight credit policy for the property sector, increasing lending rates and increasing cement prices and building materials have put some pressure on developers in proceeding with their proposed projects.

"Only projects that have successfully secured financing or precommitments from buyers or tenants are likely to go ahead," Williams said. (rid)