A survey done by Jones Lang LaSalle in 2008 infers that Jakarta is the least attractive city in the Asia Pacific region, with average annual rentals per square meters of about US$100, compared to US$1400 in Singapore.
The lower rental performance also occurs in the retail, residential and hotel sectors in Jakarta.
This implies that compared to other countries in Asia Pacific, the government of Indonesia has the least tax revenue generated from leasing transactions required to finance much needed public services including transportation infrastructure, parks, museums, schools and flood prevention infrastructure.
This results in Jakarta's limited ability to offer a quality living and working environment.
If this continues, we might see relocations and shifts of demand from major corporations to our competitive regional cities. How a city develops is partly a result of how its components are built. Major components of a city are commercial and residential real estate developments.
In an ideal world, as described by a famous American real estate guru, Graaskamp (1933-1988), a real estate development process basically involves three key participants that constantly interact: the Space Consumer Group (investors, residents, office or retail tenants, hotel guests), the Space Producer Group (developers, financiers, designers, consultants, lawyers) and the Public Infrastructure Group (government, parliament).
The three have to be equally solvent (financially healthy) to produce real estate products that are supported by healthy political, social, and entrepreneurial systems. None of the three participants can take advantage of the other.
Tax revenue should be fed back to the system to finance public services; developer profits should be invested back to maintain, improve, or develop better quality products and enough rent should be generated to pay the bank debts and provide dividends for investors.
Therefore, rentals are the function of how well these groups are interacting. Over the history of real estate developments and investments in Jakarta we have seen how these groups have performed and failed, as with the crisis in 1998.
They learned the lessons and since we have improved the enterprise system with a healthier banking industry, stronger capital market supervision and improved transparency; we have witnessed more stable political conditions with more democratic legislative and presidential elections; and we have had a relatively peaceful but dynamic social system.
All these things have supported continued growth, albeit small, in rents, occupancy, and property prices over the past few years.
These things, however, are not enough to put Jakarta in the same league of competition with regional cities such as Singapore, Kuala Lumpur, Bangkok, Ho Chi Min City and Hanoi, whose rentals are relatively higher due to a more desirable working and living environment.
The current global economic and business climate has affected real estate investments and developments in the region.
Developers and investors presently face greater market uncertainty, with falling demand and declining rentals, as most corporations have adopted cost saving measures and stopped market expansion.
Prime office rentals in these regional cities, during the first quarter 2009, have declined about (-) 8 percent to (-) 15 percent (year-on-year) and there are no definitive signs that the pace of decline is slowing.
However, Jakarta is better protected from the impacts of global economic crisis.
During the same period, the average rental of prime office buildings maintained a positive growth of about 1 percent.
This implies that real estate in Jakarta has progressed in to the right direction with reformed enterprise, political and social systems supporting healthy and strong commercial and residential real estate markets.
Notable progress can be seen in the effort to eradicate corruption, a commitment that has clearly been shown over the past years with greater transparency in business, as well as greater legal certainty and ethical standards upheld by business people and government officials.
This has earned a positive response and resulted in greater satisfaction for the people. Jakarta is now relatively peaceful and has few major street demonstrations that were common seen in the past.
Another key area of improvement is the efforts and commitment to develop public infrastructure.
This includes the proposed formation of infrastructure funds and initiatives to invite private enterprises in the development of and investment in transportation and energy sectors. Some of the notable major mid and long-term infrastructure projects include the proposed Jakarta Monorail, the Jakarta MRT and the airport link.
Other efforts to support real estate development include the issuance of new laws and regulations.
The most recent one is ministry of finance regulation no. 125/PMK.01/2008, which basically controls and promotes higher standards for valuation practices in Indonesia.
This has been done to ensure work mostly performed for debt financing and capital market reporting purposes is unbiased and professional. The issuance of new laws is also followed by the execution of fair and transparent court processes, as more legal precedents on major landmark cases support certainty in property ownership for HGB (Hak Guna Bangunan) rights.
All of the above has shown that the city of Jakarta is able to perform well, even during the crisis, so all parties concerned with real estate development can continue to increase interacting healthily to create a much more desirable city to live and work in.
There will be greater challenges ahead, and the crisis has forced the system to pause - real estate developers and their participating members of enterprise system are reviewing their future plans.
The public infrastructure group and its supporting political system will meanwhile continue to develop ways to ensure that the city does not fail and that all participating groups in the real estate development have to ensure that they will be solvent and that no group can take advantage of the other group.
The author is the vice president of Jones Lang LaSalle Indonesia
Find Article by Date