Jakarta apartment outlook bright despite threat of oversupply

Rudijanto, Contributor, Jakarta

The Indonesian apartment market is expected to remain strong as apartments are still seen as more profitable investments given the currently low deposit interest rates. But the threat of oversupply persists.

Data from property consultants and analysts show a jump in the annual supply of apartments on the market. Not only is the number of units due to be completed this year on the rise, but also that of those scheduled to be finished in the coming years.

Collier International Indonesia (CII) predicts Jakarta apartment supply will experience significant growth of 56.3 percent in 2006. This will bring an additional 21,385 units onto the market and result in a massive increase in cumulative supply to more than 59,300 units.

Property analyst Panangian Simanungkalit was quoted by Kompas as saying that around 6,500 new apartments have been constructed each year between 1998 and 2005, compared to 1,300 each year between 1980 and 1998.

With 2006's annual supply going to be the highest annual supply ever in the market's history, the threat of oversupply has started to cause concern among some market players. However, others remain optimistic about market prospects.

"Yes, there is already oversupply in certain areas but not in prime areas such as the Mega Kuningan area, which is a very good area because of such factors as good access to important roads like Rasuna Said, Casablanca and Sudirman," said Bellagio's executive director Sebastian Gunadi.

CII's latest report mentions the CBD and South Jakarta as the major development areas for apartments. According to the report, this trend will likely continue until 2007. The question is, can the apartments that are going to be built in these areas still find buyers?

This year alone, South Jakarta has witnessed the construction of the Bellezza de Case Tower 1 in Permata Hijau, the Pakubuwono Residence in Kebayoran Baru and Pondok Indah Square in Lebak Bulus.

Some other apartment complexes in South Jakarta include the Somerset Berlian Residence in Permata Hijau and the Bellezza de Case Tower 2, also in Permata Hijau. Meanwhile, the Kemang City Tower A-B-C in Kemang will commence construction in 2006.

The Somerset Berlian Residence itself consist of two towers -- the north tower with 210 units and the south tower with 186 units. Each tower has 8 penthouses. This apartment complex is being developed by the Pakuwon Group, known for pioneering the development and operation of commercial centers and large-scale cluster housing projects.

While these apartments are aimed upper income bracket Indonesians and expatriates, other apartments are aiming for the lower to middle income segment, with such units being priced at between Rp 60 million to Rp 300 million. But most of these apartment complexes are located outside the CBD area, for instance, the Salemba Residence.

Developed by Adhi Realty in partnership with Malaysia-based Eden Capital Sdn. Bhd., this apartment complex in the Salemba area offers small single and double units priced at between Rp 165 million and Rp 190 million. It also has larger units priced at around Rp 700 million.

While some of these mid-range apartments have an obvious market due to their proximity to universities, other such apartment developments simply rely on their affordability. Given their low prices, they can only be constructed in the suburbs of Jakarta or in city's satellite towns.

The Taman Semanan Indah complex on West Jakarta's Outer Ring Road near Tangerang is one such affordable development. Taman Semanan Indah offers small one or two room units for between Rp 60 million and around Rp 200 million.

Commenting on apartment complexes outside Jakarta's city center, Sebastian questioned the rationale behind such apartments. For him, the basic reason why people want to live in apartments is so as to be near their offices.

"Commuting more than an hour just to go to the office does not make sense to an increasing number of overseas educated graduates. They want to live near their workplaces. If that requirement is not fulfilled, then what is the use of living in an apartment?" said Sebastian.

Jakarta's traffic congestion has persuaded many people to move to apartments that are near their offices. For these sort of people, apartment living is more than just a lifestyle, it is a necessity.

Aside from targeting people like these, CBD apartments in Jakarta are also aimed at investors. Rather than putting their money in low-return bank deposits, wealthy Indonesians hope to gain more by purchasing apartments in and around the CBD and prestigious areas in South Jakarta, such as Kemang and Pondok Indah.

The Bellagio's developer, PT Centra Lingga Perkasa, is clearly aiming at such moneyed people with its Bellagio Mansion and Bellagio Residence projects. Both complexes are located in the Mega Kuningan area.

"The demand is strong here due to our location. We will hand over 600 units soon out of a total of 800 units in the Bellagio Residence, while in the Bellagio Mansion, we will hand over 135 units in October," Sebastian said.

The Somerset Berlian complex in South Jakarta's prestigious Permata Hijau area has also recorded strong demand with 70 percent of its units in the south tower sold. The Pakuwon Group expects that by the end of this year, 90 percent of the units in the south tower and 60 percent in the north tower will have been sold.

"The demand is still good as we are offering a new kind of smart investment in the form of serviced apartments. These are in high demand. We are optimistic about market prospects as investment is growing and more expatriates are coming here," said Yayuk Rahayu of the Pakuwon Group.

She also said that she was optimistic because of Somerset Berlian's prime location. The complex is near the well- established Pondok Indah neighborhood with its shopping mall, international schools and other public amenities. It also has well-developed access to Kebon Jeruk and the CBD's main thoroughfare, Jl. Sudirman.

"Our security system is supported by a CCTV system and panic buttons. These are conveniently located within every unit for urgent assistance. We also have water features, a reflexology pool, children's fun pool, outdoor jacuzzi, jogging track and pedestrian walkway," said Yayuk.

With a large number of new developments due to come on the market this year and in coming years, Jakarta will remain a hot market for apartments. But outside Jakarta, particularly in Singapore and Australia, developers are also boosting their efforts to persuade wealthy Indonesians to invest in the apartment markets in those countries.

The effort to attract Indonesian buyers has paid off, with Kompas daily reporting that Indonesians constitute the biggest overseas buyers of Singapore property, followed by people from Malaysia, Brunei Darussalam, Hong Kong and Shanghai.

However, optimism is still high among Indonesian developers that they will not lack buyers. They says that investors have suffered losses in the Singapore apartment market due to a drop in property prices of between 35 percent and 45 percent, and low rental income.

"Singapore apartments are oversupplied. The yield return is less than on an apartment here. Beside, it is hard to maintain an apartment abroad as it is far away from home," said Yayuk.

Whether for living in or simply as an investment, Jakarta offers a wide range of apartments to suit all comers. In spite of this, however, many Indonesians still prefer to invest in overseas apartments. This is something that will needed to be pondered by domestic apartment developers, operators and policy makers.