When we use the term investment market, it can mean a lot of different things to different people. For landed housing developers and apartment developers, it can mean the individual end-users or private investors who have the capacity to buy one or more homes or apartments for investment purposes. For the developers and owners of large commercial, residential and mixed-use complexes, it can mean big institutional, private equity, family office and high net worth investors who have the financial resources to buy entire buildings, complexes and portfolios.
At the moment, the brightest segment of the investment market is the private, individual investor who is starting to buy landed homes and apartments, while for the larger institutional segment, the current environment is quite subdued.
While there is a lot of capital sitting on the sidelines, either the pricing of the offers hasn’t been good enough, or the risk associated with extended unknowns makes the underwriting very difficult. For example, how long will it take for office rents and office occupancies to bounce back to earlier levels, or when will healthy levels of luxury apartment demand return, backed by confidence in the economy, or higher user demand and the prospect for increasing capital values?
While we see rising levels of investment in many other gateway cities across Asia and North America, in some cases now equalling or surpassing pre-pandemic levels, we somehow find Indonesia in a different situation. The situation is more difficult for large office & apartment developers because- not only were we hit by the economic and Covid-19 situations, but we were already in a pre-existing oversupplied, downward trending office and apartment market.
The Positive Signs
Despite all the uncertainty in 2021, however, there are some positive signs. Fortunately, the Indonesian government seems to have managed the economy and health policies during the Covid-19 pandemic reasonably well. Fitch maintained a BBB credit rating for Indonesia with a target GDP growth for 2022 of 6.8%. Historically, when the economy grows, the property market grows with it and user demand and investment rises as well.
At the moment, for both local and foreign investors, the most favoured property investment sectors remain landed housing and logistics.
Some people will choose to buy and live in a less expensive and more convenient apartment development compared to a landed house located 1-2 hours from the city centre. Affordable landed housing priced from IDR300 million to IDR1 billion has the widest, deepest demand, but bank loan approvals for buyers in the lower price range can be hit or miss. Normally, loan approvals and transaction closures are more certain in the IDR1-2 billion price range.
For those with more savings and higher paying jobs, some will buy middle-upper and luxury apartments in convenient city centre and fringe locations. But there will be others who choose more affordable landed housing in farther-away locations with improved infrastructure including better public transportation on our new toll roads, LRT, MRT and commuter trains. Either way, there will be higher demand for all kinds of property. We expect the demand for Transit Oriented Developments (TOD) to rise faster than non-TOD, so opportunities to buy land or engage in joint ventures (JV) with landowners at strategic TOD sites remains attractive.
The government’s extended VAT incentive is proving to be a real positive boost for property investment, especially landed housing. As this policy is extended until June 2022, this will help to match the extension of Bank Indonesia’s zero down payment programme.
While logistics is much in demand, the volume is relatively small compared to other Asian gateway markets, so there is still a lot of room for growth.
For the office segment, let’s see how the market finds its way to a new normal. We still have not seen the levels of pricing for existing, operating office buildings that motivates buyers to transact.
Lastly, for the hotel market, we expect it to bounce back relatively quickly in terms of occupancies, with room rates to follow. Some owners of hotels have depleted their cash reserves over the Covid-19 period, therefore, there are opportunities for investors to buy hotels or shares in existing hotels or portfolios, and this will provide the capital for capex, room renovations and expansion.
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