Recovery trend continues amid increasing demand

Rikza Abdullah, Contributor, Jakarta

Jakarta's rental apartment market, severely hit by the economic crisis in 1997, continues its recovery amid a steady increase in new demand.

The demand has grown steadily as more and more expatriates prefer to live in apartments instead of houses, due to economic, security and personal safety concerns.

However, as the surge in demand has not been accompanied by any increase in new supply, owners have taken it as an opportunity to raise rental rates, albeit the increase has not been very significant.

The director of strategic advice for property consulting company PT Procon Indah, Lini Djafar, told The Jakarta Post early last week that the apartment market had become more competitive in recent months due the absence of a new supply, both in rental apartments and strata-titled condominiums.

The total supply of rental apartments at the end of June stood at 5,982 units, of which 2,054 were serviced apartments and the other 3,928 non-serviced ones. Meanwhile, the total supply of strata-titled condominiums reached 26,313 units, of which 8,717 units were available for rental.

Lini said the increase in demand had increased the occupancy rate from 58.9 percent in the second quarter of 2001 to 60.8 percent (with a net take-up of 143 units) in the first quarter of 2002, and to 61.6 percent (with a net take-up of 125 units) in the second quarter. About 5,640 units were left unoccupied as of the end of June.

The occupancy rate for leased apartments steadily declined, from almost 90 percent in 1996 to slightly over 55 percent in early 2000, before rising later that year.

Lini said the economic crisis, which began in the latter half of 1997, had forced companies to terminate their hiring of expatriates, while many of those remaining in the country had to send members of their families back to their home countries. Expatriates prefer to stay in apartments rather than rent large houses these days.

Property consulting company Colliers Jardine Indonesia said in its latest residential market overview that increasing concern over personal safety and security had also encouraged expatriates to lease apartments instead of houses.

Expatriates with high incomes generally prefer to stay at luxury rental apartments in Jakarta's central business district -- located in Central and South Jakarta -- while those on lower incomes generally stay at leased strata-titled condominiums, mostly located in West and North Jakarta. Most of the expatriates work for companies operating in the oil and minerals mining, airline and trading businesses, as well as embassies.

The occupancy of strata-titled condominiums is dominated by domestic executives who have bought them for temporary occupation or for investment.

Before the economic crisis, the occupancy rate of strata- titled condominiums increased, reflecting a new trend for Indonesians to own and live in apartments. A change in the lifestyle of high-income Indonesians then discouraged investors from building new rental apartments. They were also reluctant to build rental apartments due to their lengthy return on investment. However, during the economic crisis, sales of strata- titled condominiums declined and developers adjusted their marketing strategy by offering some of their condominiums to rent to improve their cash flow.

"Strata-titled condominiums for lease are now dominating the rental apartment market due to their competitive rental rates and flexible leasing terms," Lini said, adding that because business confidence was low, developers tended to shorten their leasing periods to about six months to one year, as compared to two-year or three-year terms previously.

She said the average rental rate for serviced apartments during the second quarter of this year had increased by 6.8 percent in U.S. dollar terms over the same period in 2001, and the that for non-serviced apartments within the range 4.3 percent to 7.1 percent. Meanwhile, the average rental rate for strata- titled condominiums -- whose rents were generally denominated in rupiah -- increased in the range 11.8 percent to 21.6 percent in U.S. dollar terms due mainly to appreciation in the value of the rupiah.

The monthly rental for serviced apartments was set at about $18.50 per square meter during the second quarter of this year, for non-serviced apartments in prime areas about $14.50, non- serviced apartments in secondary areas about $9.60, strata-titled condominiums in prime areas about $9.40 and strata-titled condominiums in secondary areas about $6.90.

Procon Indah says, in its latest quarterly market review, that the overall leasing demand in the latter part of this year is likely to remain flat because business confidence in Indonesia is still weak, while the average rental rate may remain stagnant as new units are expected to enter the market by the end of the year.

The Pondok Indah Golf Apartment Tower 2 in South Jakarta, for example, will increase the number of rental apartments by 100 units later this year, while completion of the Four Seasons Regent Residences Towers 3 and 4 in South Jakarta, Ambassador Apartment Tower 2 in South Jakarta, Pavilion Park Apartments Towers 2 and 4 in Central Jakarta, as well as the Pantai Mutiara Condominium in North Jakarta, may increase the number of strata- titled apartments by about 500 units.

These figures indicate that the market share of rental apartments will decline further later this year as they will continue to face strong competition from strata-titled condominiums offered for lease.

Adhitya Wisesa, a research and consulting manager for Colliers Jardine, told the Post that the demand for rental apartments in Jakarta's prime areas was actually expected to increase slightly in the second half of this year as more expatriates were likely to come to Indonesia to do business.

The number of expatriates working in Jakarta, which dropped from about 40,000 before the economic crisis to about 10,000 in 1998, had increased to around 12,000 to 13,000 at present, he said.

"But the expected additional demand will not force up rental rates because the supply will also increase with the operation of new apartment buildings like the Four Seasons Regent Residences Towers 3 and 4 and the Pondok Indah Golf Apartment Tower 2," he said.

He added both demand and rental rates were likely to increase further early next year as the country entered a free trade era under the ASEAN Free Trade Agreement and its economic fundamentals improved.

However, Adhitya warned, developers should be cautious because improvements in the apartment business would depend very much on social and political stability in this country, which would hold general elections in 2004.

Furthermore, more strata-titled apartments will enter the market when construction of the fifth and sixth phases of Taman Paris Apartments in Tangerang and the Luxury Da Vinci Apartments in Central Jakarta is completed by 2003. In the following year, two major projects -- the Gading Mediterania Residences, with 1,800 apartments in Kelapa Gading, North Jakarta, and Mediterania Garden Residences, with 2,800 apartments in Grogol, West Jakarta -- will enter the market.