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Does the new emergency PPKM effect the stability of property investment in Indonesia?

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1. With the condition of COVID-19 positive cases increasing recently, how does this affect the stability of property investment in Indonesia?

The recent escalation of COVID-19 virus infections through the Delta variant has only increased the uncertainty around local-regional-national economic and property market recovery. More uncertainty and longer periods of underperformance in hospitality/ tourism, retail, F&B, office leasing and apartment sales will only exacerbate the pressure on profitability and survivability. Consequently, investors will continue to expect COVID-19 pricing where property values are discounted to reflect the greater risk of cash flow challenges, lower rents/ prices, slower absorption and lower occupancies.

2. How does the effect of global market players' perception regarding Indonesia's investment performance also affect the stability of property investment in Indonesia?

Global investors are more focused on distressed property investment opportunities in gateway, developed markets over the lesser developed markets. Also, with travel bans in effect, the ability to fully evaluate properties and establish deeper relationships with prospective local partners is greatly impacted. Consequently, to get the attention of global investors in this current market condition, the offering must be very compelling in terms of property asset quality, location and price.

3. Will this situation also affect domestic investment, which is currently considered to have a considerable role?

With the new PPKM emergency lockdown measures effective from 3 to 20 July, even local investors will be extremely careful and avoid contact with other people. At the end of the day, the property business is very localised. The value and the optimism in the market will build on good news and successful projects. At the moment, the good news is little, so the market optimism is held in check. At this time, we expect even the domestic investors will be extremely selective in their acquisitions and choosing the safest asset classes to hold during uncertain times.

4. What do investors need to consider if there are ongoing acquisition processes to ensure that everything is safe and under control, especially in the current conditions?

As long as there is a local team and local consultants that can manage the physical due diligence in the acquisition process, the rest of the legal, financial, commercial and technical due diligence can all be conducted through technology. There should not be any unsurmountable issues to manage an acquisition process, even in our currently challenging environment.

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Steve Atherton

Director

Capital Markets & Investment Services

Jakarta

Originally from Los Angeles, but now living and working in Asia for over 25 years, Steve's background includes Office Landlord Representation & Tenant Representation, Office & Residential Development, Management over Asia Pacific region for a major global real estate company where he also served as functional head over Investment Services & Capital Markets for over 10 years.

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