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.