Jakarta: Local drive

Jakarta: Local drive
By Terry Blackburn

For many years, the real estate money in Jakarta has gone one way – out of the city into places such as KL, Sydney, Perth and especially Singapore, the overseas investment destination of choice for wealthy Indonesians. Now, though, some of the capital is beginning to flow in the opposite direction. Luxury real estate developers are targeting both local and adventurous foreign buyers, looking either for a home in the city or a long-term investment in one of the region’s emerging markets.

"In terms of price, Jakarta is much lower than Singapore and still somewhat lower than Kuala Lumpur or Bangkok. But in terms of quality, I think it does not differ a lot," says Anton Sitorus, Jones Lang LaSalle’s Head of Research for Indonesia.

The new luxury boom in the capital is being spearheaded by the likes of branded developments by St Regis and Kempinski, the eye-catching Regatta by Burj Al Arab designer Atkins, and the mixed-use Essence on Darmawangsa. Although foreign investors make up a small percentage of the market overall, they’re extremely active in the high end of the market.

"Approximately 40% of our buyers are from Korea, America, England, Australia, Singapore, Malaysia, Hong Kong, Japan and China," admits Ivada L. Santoso, Marketing Director for the Essence on Darmawangsa.

This is a high percentage considering the restrictive investment laws, which make foreign ownership difficult. As in Bali and elsewhere in the country, various titles exist that allow foreigners to have long leases and effective control of land and property, as well as nominee schemes allowing companies to own properties.

In practice, where apartments are concerned in urban Jakarta, this generally means a long lease with an option to sell. "We accommodate the regulations by using an Option Agreement, thus the buyer has the right to sell the property, so there’s no difficulty in attracting foreigners," Ivada says.

However, many industry players believe the government could be doing more to attract foreign investors. "The private sector has frequently asked the government to provide more relaxed regulations concerning foreign ownership; to learn from Malaysia and Singapore," Sitorus says. "But so far, the government has only accommodated the regulation about land-ownership periods."

Downtown appeal

As with most other luxury products, the Essence on Darmawangsa is located in the south of the city, on the outskirts of the ‘Golden Triangle’ central business district. The project features three apartment towers and a five-star hotel set in 5.3 hectares of land, 70% of which will be dedicated to landscaped gardens and a water park.

Since launching in 2005, the development has recorded impressive sales for its two principle residential towers. "In our first two days of launching the Eminence Tower, we sold 60%," Ivada says. "At the moment, we have sold 95%. As for the South Tower, at the present time we have sold 50%."

Ironically, the accommodation boom in the CBD is helped along by Jakarta’s poor infrastructure, particularly its notoriously bad traffic and lack of a mass transit system, which ensures that the suburbs aren’t as an attractive an option as in other Asian cities.

"The Jakarta residential market will continue to be dominated by downtown and CBD apartments, partly driven by the global trend for ‘inner city living’," says Hary Jap, President of Indoproperty Real Estate. "The traffic jams and the high costs of landed property mean living in the suburbs is no longer suitable for most Jakarta people working in the CBD."

Sitorus concurs that the business district area is the most exciting area for new developments. "Projects in prime CBD areas that are offered between Rp300-700 million (US$33,000-$77,000) per unit, for one or two bedrooms, are what interests me most in the market right now," he says. "Due to the location, these projects have better prospects for rental or capital increment."

That said, the same infrastructure problems are also hampering the city in terms of foreign appeal, as Jap explains. "People soon learn that it’s all related to things not being well planned, even going back to the Dutch era, such as flooding and mass transportation. The government is now studying the traffic and looking at buses and water transportation, although these are yet to be proven as long-term solutions."

Upward curve

Despite these setbacks, the city’s real estate market as a whole has bounced back impressively since the 1997/8 crash. Surprisingly, the residential sector has already surpassed pre-1998 growth, while other sectors are developing more slowly.

During the last decade’s peak between 1995-1997, ‘new completions’ grew around 5,000 units per annum. Between 2004-2007, the figure is predicted to average out at about 10,000 units per annum. In other property sectors, the market has shown some positive growth yet is still below pre-1998 levels.

In fact, the residential market could be judged to be in better shape than ever, as it’s underpinned by local investment with a minimum of foreign speculation. "In the past, property demand was supported by high economic growth and strong foreign investment, but today property demand is primarily driven by local demand," Sitorus explains.

Like elsewhere in Southeast Asia, there’s much greater stability in residential property in the current growth cycle. Lessons have been learnt across the board, by the government, by investors and by financial institutions.

"After the crises, the financial sector is wiser in giving loans to developers, which was one of the main causes of the crises," Jap says. "It’s safe to say that the main difference after 1997 is that more projects are financed by the consumer. The projects offered are more consumer centred, compared to the ‘new town opening’ style before the crises. Location choice is more sensitive. The consumers are more sceptical towards big-scale projects, and developers’ good names and corporate branding are big issues now."


Brand building

Branding is being utilised in two ways, both through the power of big international names such as St Regis and Kempinksi, and through commissioning internationally renowned architects and designers to work on prestige projects. The latter trend is exemplified by Regatta, which launched in April 2006 and is set to fulfil its self-titled ‘icon’ status due to its distinctive curved design by WS Atkins, the firm behind Dubai’s Burj Al Arab hotel.

Like its famed elder sister, Regatta will follow a nautical theme and feature an aerodynamically shaped hotel as its centrepiece, set to be one of the most striking landscape features overlooking the Java Sea, while series of 10 apartment towers will sport the same curves. Indeed, the name Regatta was inspired by the vision that the towers will"“symbolise tall ships sailing around the ‘lighthouse’ represented by the hotel". All the apartment towers will be named after major port cities of the world, and each is orientated toward their corresponding city.

Badan Kerjasama Mutiara Buana (BKMB), the local developer of Regatta, is betting big on Jakarta’s continued growth with its coastside location outside the CBD, which is linked by toll road access.

Launched in April, the St Regis Hotel and Residences, Jakarta is set to be completed in 2011 and will have 284 residential units for sale. As with most luxury developments in the city, the project will be mixed use, including a hotel, but will have the added advantage of having one of Starwood’s most prestigious brands behind it.

“The strategic location of the project in the heart of Jakarta, combined with the bespoke service of the St Regis brand, will make this property an extremely attractive choice for discerning travellers,” Ross Klein, President of the Luxury Brand Group, said at the launch. “Offering premium hotel accommodation and luxurious residences, St Regis Hotel and Residences, Jakarta will be a welcome addition to the city’s booming financial district and will help meet the surge in demand from multinational corporations as well as Jakarta’s growing numbers of tourists.”

With all this new stock arriving on the market, speculative investors and non-owner occupiers should still be wary, as one sector of the market that has been sluggish over the last few years is rentals of luxury apartments.

“The luxury rental apartment market depends, to a certain extent, on the expatriate market, but since the growth of expats in Jakarta remains slow, demand is also limited, not to mention the competition from luxury houses,” Sitorus says. “On the other hand, new supply has grown quite significantly, boosted by condominium developments, thus triggering higher competition. Going forward, we expect the market to face higher vacancy rates and limited rental growth.”

Jap agrees, but also highlights the potential of strong capital gains. “I always doubt that the luxury rental market can beat or even be at the same level as the ordinary rental market. The reason is very simple: the target is the upper end of the pyramid, which is rare, and usually luxury means adding more price at the same utility level. This is why we usually get lower rentals [psf] for bigger units,” he says.

“In my opinion, it’s better to expect higher capital gains for this kind of market, since rarity is the keyword here. Compared to neighbouring countries, investing in Jakarta is still considered very cheap by regional currency standards and brings a good return. Most investments bring handsome capital gains during a short period of time.”