Jakarta apartment outlook bright despite threat of oversupply

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.