Jakarta property sector inching out of economic crisis
Jakarta property sector inching out of economic crisis
By Bruce Emond
As the dark days of 1997 drew to a close, Jakarta resembled a modern-day Pompeii, scarred with eerily desolate construction sites where activities had seemingly stopped in midstream.
But it was not a volcano which blanketed the city and brought it to a grinding standstill, but, instead, a meltdown of the economic variety.
Spreading from Thailand throughout the region and laying waste to all in its path, the economic crisis virtually snuffed out the country's booming property sector when it struck with a vengeance in mid-1997.
It brought to an abrupt halt the huge growth in construction which began in the 1990s.
During those halcyon years, gleaming new office buildings and apartments went up around the city as architectural statements of an economy on the make.
Jakarta, seemingly overnight, transformed itself from an overlooked member of the motley collection of the world's capitals to one boasting a stunning array of ultramodern buildings.
Building growth
Growth was not limited to upmarket buildings, but also encompassed shopping complexes, such as ruko (shop-houses) in the city's suburbs.
And then it all came tumbling down when the baht took a bath.
The crisis, a sobering jolt back to reality for those fly-by- night characters behind much of the expansion, brought the property sector to its knees.
Forklifts and machinery were put in park and workers laid off in droves.
Matters were not helped by the wanton destruction during the May 1998 riots, when, in what was supposedly in the name of reformasi, an orgy of looting and destruction engulfed the city.
Retail outlets were particular targets, offered up on the sacrificial altar of greed, ignorance and the craven desire to get even with the "haves".
Today, however, after the topsy-turvy fortunes of 1999, when the country found itself with a new leader and legislature, and reluctantly parted ways with its youngest province, the property sector is beginning to stir from its torpor.
Life is resuming ever-so slowly on construction sites, but the lingering effects of the crisis remain.
In its February Jakarta Property Outlook, Jones Lang Lasalle/Procon Indah noted the "greater guarantees of security and legal certainty" expected in 2000, but also offered a word of warning on the property sector's vulnerability to sociopolitical forces.
"(A) continuing stream of negative news from the banking sector, the social unrest in eastern Indonesia, together with the pressure faced by TNI (Indonesian Military), however, have resulted in disappearing momentum for the country to move quickly forward," the property consultant noted.
"The property market in 2000 to a certain extent will much depend on the effective handling of the above issues."
CBD offices
Jones Lang Lasalle noted that there would be no new supply in this sector in 2000 because there were no considerable construction activities on partially completed projects.
It attributed the situation to a lack of funding and oversupply, and predicted the proposed projects would only enter the market in 2002 or 2004.
Net takeup in the central business district (CBD) was 5,819 sq. meters in the fourth quarter of 1999, which Jones Lang Lasalle called a "considerable improvement" after negative takeup in the past seven consecutive quarters.
However, all was not rosy for the year. Total net takeup in 1999 was negative 63,165 sq. meters, compared to negative 299,860 sq. meters in 1998.
The occupancy level stood at 74.5 percent, leaving some 735,000 sq. meters vacant.
It reflected the lowest ever historical occupancy level, with the highest amount of oversupply.
Leasing activities were dominated by tenant relocations within the CBD. This included movement from older to newer buildings and movement from Grade A to Grade B offices for lower occupancy costs.
Oil and mining, transportation and financial-related services, including stock brokerages, were active industries in CBD office leasing transactions.
While many local banks reduced the office space occupied, the Indonesian Bank Restructuring Agency (IBRA) and designated "healthy" local banks were demand generators during the review quarter.
In the fourth quarter of 1999, a further 6,100 sq. meters of office space previously occupied by liquidated banks became available for lease.
Of a total of 51,000 sq. meters of CBD office space previously occupied by the liquidated banks, approximately 18,000 sq. meters have been vacated and returned to the market.
Investment activity
Jones Lang Lasalle reported that no major transactions occurred in the CBD office market during the fourth quarter of 1999.
Local investors from the manufacturing sector and Asia-based foreign investors have increasingly shown interest in Jakarta property following the improved business climate after the presidential election in October and considering current low values.
The property consultant said that while local investors are particularly interested in offices, foreign investors have been actively looking at offices and apartments, and have investigated the feasibility of incomplete projects.
Properties under offer for debt settlement are likely to become common in the near future.
IBRA's Asset Management Investment Unit, which deals with shareholders' investment, is in control of some office buildings in the CBD.
However, Jones Lang Lasalle said IBRA was hesitant to dispose of property at the currently depressed prices.
Retail
Retail supply increased 5 percent in 1999, reaching 1.13 million sq. meters.
The property consultant said the additional supply was primarily from Plaza Cempaka Mas and the newly refurbished Duta Merlin.
Confirmed new supply for 2000 to 2001 comprise centers which were damaged during the May 1998 riots.
Centers currently undergoing refurbishment include Plaza Slipi Jaya, Plaza Jatinegara and Plaza Glodok. Work on Plaza Daan Mogot is scheduled to commence later this year.
Upon completion of the above-mentioned centers, the market will regain a total of 89,500 sq. meters, or 73 percent of the total space damaged during the riots.
Potential new supply in the next two years to three years will come from projects which were shelved during the crisis, including Mal Pejaten, Conrad International Plaza and Plaza Kasablanka.
Total net takeup in 1999 was 134,704 sq. meters, a dramatic turnaround from negative takeup of 156,964 sq. meters in 1998.
Most centers experienced increasing consumer traffic throughout 1999, Jones Lang Lasalle said.
Average market occupancy reached 88.2 percent at the end of 1999.
It reflected an increase of 7.99 percent from 1998.
Prominent retail centers, including Plaza Senayan, Mal Pondok Indah and Mal Kelapa Gading, managed to achieve almost full occupancy, the property consultant reported.
Occupancy is expected to exceed 90 percent in the short term, which will exert upward pressure on rentals.
Rental apartments
Supply increased 4 percent, or a total of 541 units, in 1999, with the additional supply mainly from individual strata-titled apartments available for lease and some from the unsold strata- titled apartments that were converted into serviced apartment units.
Future supply to be completed by 2001 will comprise 388 partially completed units that are under slow construction progress, compared to the consultant's estimate of 670 units in the last quarter.
The proposed units comprise 56 percent serviced apartment and the remainder is an estimate of individually owned condominiums that will be offered for lease.
In the fourth quarter of 1999, leasing inquiries as well as leasing transactions for expatriate rental accommodation has notably increased.
Improved social and political stability in the greater Jakarta area has increased the confidence of foreigners in returning to the capital, with some bringing their families.
Some Asian expatriates have indicated plans to relocate from factory compounds to larger accommodation in rental apartments or houses as their families return.
Many expatriates hired in the financial sector have also contributed to the demand increase, mainly for serviced apartments.
Most transactions are recorded in the secondary market and on a rupiah basis.
In line with increased business confidence and rental market activities, condominium prices in prime locations and the Jakarta CBD increased 9.6 percent and 4 percent respectively, to Rp 5.7 million and Rp 9 million per sq. meter.
In equivalent U.S. dollar terms, the average prices were $804 per sq. meter in prime residential areas and $1,266 in the Jakarta CBD, reflecting an increase of 29.5 percent and 20.3 percent respectively.
As the market is dominated by local investors, and, therefore, most transactions occurred on a rupiah basis, the currency volatility will cause prices in U.S. dollars to continue to fluctuate.
What about properties which combine the best of all worlds, from retail, to office, to hotels?
Fitting that tall order is the appropriately named Midplaza, set in the heart of Jakarta's Golden Triangle on Jl. Sudirman.
Midplaza is distinguished from its competitors by its unique Superblock concept which provides an interconnected block of office buildings, hotels, apartments and retail space.
It boasts a veritable compendium of the movers and shakers of the corporate world among its tenants.
It also offers excellent facilities, from telecommunications to restaurants, a post office, local and international banks, a hair salon, printing and photocopy services, a convenience store, travel agent, stationary store, dental clinic and florist.
Adjoining it is the Kempinski Hotel Plaza, which provides services commensurate with its five-star status. It has 241 apartments and 376 guest rooms.
Midplaza may be sitting pretty with its extensive facilities and excellent location, but it remains to be seen if the rest of the property business will be able to begin its full reconstruction.
Silly asides and a penchant for offbeat humor may win one a place in the hearts of the man in the street, but the common touch grows old very quickly when foreign investors take the joviality to be a sorry lack of being in touch with reality.
In determining the fate of the property sector, much will depend on how matters are played out in the corridors of power.
Many hope that petty in-fighting and Machiavellian jostling for power can finally be put aside for the good of the people, so that those jittery men in suits, armed with their much-wanted moolah, make their return.