Since 2014, investors have essentially taken a wait and see approach to property investing in Jakarta. Investors have sighted 2014 elections, China’s economic slowdown, slower GDP, falling property prices, introduction of new luxury property taxes and finally the tax amnesty for not wanting to invest. All this points to uncertainty, and low investor sentiment in the market.
However, the above then presents a situation where there is potentially a lot of pent up investor demand over the last few years that is waiting for some positive news or something that triggers investors to come back to the market. Remember, Jakarta’s population and middle class are still rapidly growing, the demographics are the envy of many countries and these are cornerstones underlying demand. Add on top of this the several high profile infrastructure projects currently underway including the Jakarta MRT and LRT projects, JORR2 and the Jakarta to Bandung High Speed Rail and the case is building for a turning market.
One – Interest rates are low with the BI Repo rate at 5%. That is very low for Indonesia and will encourage potential investors to invest and borrow money.
Two – Loan to value ratios (LTV) have increased which means that you can borrow more money with a lower deposit (85% leverage on first property). This is a good thing for investors because they love to borrow as much as possible of other people’s money at the lowest interest rate possible.
Three – The first round of the tax amnesty has finished with the large percentage of people participating in the amnesty already paying their tax in the first round because of the low tax rates on offer. I think investors will now take the view of – Ok, I have paid my tax, that’s out of the way, let’s have a look at the market.
Four – As mentioned, I think there is a lot of pent up demand in the market since 2014. Essentially you have had investors sitting on the fence for a number of years waiting for more certainty in the market and some better investment conditions. Indonesian’s haven’t lost their wealth because of a slow domestic economy, they have been holding on to it waiting for a reason to buy property with it.
Five – Inflation is at historical lows at 4.5% which is good because high inflation will eat away at your property returns on a real basis. The Rupiah has also remained very stable in the 13,000 – 13,500 range.
Six – Stable politics combined with an increasingly confident president shifting toward more favorable policies for private sector and the market. Jokowi has been able to gain control of the Parliament and that should bring confidence to the market.
Seven – Prices have dropped more than 25% on the secondary residential market (in certain areas) since 2014 and have been flat lining for quite some time. The primary apartment market hasn’t dropped, nor will it, because developers don’t want to erode their profit margin by reducing their price. Developers have however, increased their incentives for buyers, made payment terms (up to 60 month payments) more favorable and continued their usual discounting in an effort to attract buyers back to the market.
I see a huge price discount on the secondary residential market and value on the primary. The only way the market is going from here will be North, and when it turns I think it will turn quite quickly on the back of Jakarta’s pent up demand. I think the next 1 year will be a different investing environment to the one we are currently in.
All of this points to a buying opportunity for smart savvy investors who can see the capital growth prospects this city has.
source: Trent Muffett