The main principles of the property business are generally known as location, location, location. However, what makes a location so appealing? It's the infrastructure.
Infrastructure is generally known as transportation, such as roads, bridges, seaports and airports, railway networks, and utilities, such as clean water supply and electricity.
Infrastructure is an instrumental element for development. Areas or regions with limited electricity supply are less attractive for business and investments. Districts that do not have quality roads and other road transportation are generally less developed.
It has been proven that quality infrastructure, particularly road improvements, helps raise land prices. We have seen in the past that even a mere road-widening can cause an appreciation of land and property in the surrounding.
Highways and toll roads generally have a larger impact in price appreciation as they have a multiplier effect on demand for residential and commercial developments. Developments of townships as satellite cities have also been promoted as accessibility improves.
Some may be of the opinion that toll road projects only benefit limited parties, when in fact many can benefit from them.
Businesses that are heavily reliant on the timely delivery of goods, such as in agriculture and manufacturing, can work more efficiently as distribution costs drop. Vegetables, fruit, dairy products and seafood can be delivered fresh, faster.
Industrial estates that are well-located with good accessibility tend to outperform their competition.
Of course, infrastructure improvement benefits the land owners who are directly affected the most. Those who are sharp and smart enough to invest in land where infrastructure will be improved in the future tend to enjoy a higher gain as land always appreciate over time.
In Jakarta and its surroundings, we have seen developments flourish with the completion of infrastructure. North Jakarta infrastructure improvements were established relatively early on in the modern development of Jakarta, as it was crucial for both export and import traffic through Tanjung Priok Port.
The completion of the Jakarta inner city, Jakarta-Cikampek and Jakarta-Merak toll roads greatly enhanced North Jakarta, especially Tanjung Priok.
This has triggered the development of factories and warehouses along the Ancol corridor and promoted residential developments in Pluit, Ancol and Sunter.
In West Jakarta, the completion of the Jakarta Outer Ring Road (JORR) that links West and South Jakarta has further enhanced accessibility, linking Ulujami to Kebon Jeruk. This will also connect to residential estates to the southwest of Jakarta, such as Karawaci, Gading Serpong, Alam Sutra and BSD.
In South Jakarta, the development of T.B. Simatupang has promoted new establishments along the corridor. In the city, the widening of Casablanca has stimulated many commercial developments along the Rasuna Said, Casablanca, Dr. Satrio and Mas Mansyur corridors.
Infrastructure improvements between cities have their advantages as well. Improvement of linkages between Jakarta and Bandung, for instance, has provided an alternative vacation destination for Jakarta residents, who used to flock to the Puncak area. Day trips to Bandung are becoming more common as the travel time has been significantly reduced. Businesspeople from Bandung now have more frequent business trips to Jakarta.
In light of the positive causal effect between property and infrastructure, the recently proposed 2010 state budget supports development in infrastructure to sustain better economic growth and is seen as a positive approach by many. With the global economic slowdown, it is perceived as a stimulus to help cushion the negative impact of the economic contraction.
This stimulus creates a positive outlook for the property sector, as infrastructure plays a major role in boosting the property industry. Many expect the provision of quality infrastructure will continue to be supported. Investments are sustained with such improvement.
As the global economy contracts, we are reliant on our domestic strength as proven in the property investment market during the past few years. Property investments were dominated by local players. Many are confident the property market will recover relatively sooner compared to the monetary crisis of 1998. Compared to elsewhere in the region, Indonesian property is performing better in this current situation.
Optimism has risen with the relatively minimal business disruption post election. However, expectations are high for the new government. It is expected the government will commit to its plan on the stimulus for quality infrastructure.
Not to say that other sectors are less important, but the infrastructure sector has become a necessity for society as a whole. Vivin Harsanto is head of strategic consulting at Jones Lang LaSalle Indonesia, and can be contacted at vivin.harsanto@ap.jll.com.
Find Article by Date