Escaping the Bubble

Prices in the Indonesian capital are sky high right now, but far from it being a sign of a bubble, experts believe that opportunities abound in the city. 
The city may have seen prices double in the five years between 2009 and 2016 and its property price index climb 150% – even surpassing the price increase in cities known for their rapidly growing real estate market like Dubai and New York, but according to industry insiders, Jakarta’s property market is far from going into a bubble. In fact, it is just getting started. 
There is still much untapped potential in Indonesia’s capital; one of the biggest upcoming changes is the city’s first metro line, scheduled to open in 2018. This is likely to unleash a string of development and investment opportunities in a city where the lack infrastructure and what has been called the world’s worst transport gridlock have always been a serious concern for foreign investors. In fact, the cost of lost time, fuel and health from being stuck in the city’s infamous traffic is estimated at billions of dollars every year. Less than 15% of the trips taken by the city’s population of more than nine million are on public transport. 
To the wealthy, however, transport gridlocks seem to be of little concern. Prices and demand for centrally located luxury apartments are surging. When the metro is completed, certain areas, especially those within walking distance to metro stations, are likely to see further growth. Already, land prices around the northern and southern ends of the metro have seen some increase. 
The future situation in Jakarta is likely to mirror that of Bangkok, where proximity to a train station remains a huge selling point even for luxury apartments occupied by high-net-worth individuals who more than likely own private cars. This is because if unpredictable traffic conditions prevail, the metro will become an important – and the most reliable – means of transport.
With anticipation for infrastructure improvements high, developers are going on a building binge. 47,269 units are on the cards to be built between 2015 and 2016. Despite this rapid building, it is estimated that supply of homes in Jakarta is currently only a third of demand. Although most young people in the capital are priced out of buying their first properties, the city sees a large demand from wealthy buyers looking to buy their second homes for investment purposes. Sales of these units are expected to be quick, especially with the announcement that foreigners are now allowed to buy and own properties costing at least five billion rupiah. Previously, foreigners were only given “right of use” of properties for a maximum of 25 years. Jakarta’s large and steadily growing population means that demand is unlikely to be quelled in the near future. 
Compared to other cities in the region, Jakarta currently has the fastest increase in property prices. Between 2012 and 2013, the capital saw an impressive 38.1% increase. This came about on the back of record lows in the interest rate, which was only at 5.75%. The price increase dipped to 11.2% between 2013 and 2014, when the government implemented policies to curb speculative buying. Strict lending restrictions were one: Those applying for a loan to purchase their second property are now required to pay a deposit that is 30% of the home’s value, while those who already own two or more homes must pay a 40% deposit. Banks are now also disallowed from providing loans for purchase of properties that are still under construction – previously, it was not unusual for speculators to buy and sell an apartment before it was even completed. Apartments have been known to changed hands several times, getting more expensive each time, before the building was even constructed. Last, but certainly not least, the interest rate was increased to 7.5%. But although the current growth rate is slightly slower and more reasonable, the city is far from slowing down.
For investors, worthy areas to look at include those near the future metro stations as well as central areas near the CBD – because despite the addition of the metro, traffic congestion is unlikely to ease completely and proximity to offices and malls will remain an important factor in capital growth or yield. The figures don’t lie – occupancy rates for lease apartments in central Jakarta was 81% in 2014, a significant 10% higher than in other parts of the city.