- Investment in the public property market can be an alternative that will bring fresh opportunities to deploy capital.
- The dominance of domestic investment shows that domestic companies still have the confidence to invest in Indonesia.
Jakarta, 25 January 2021 – Leading diversified professional services and investment management firm Colliers International Group Inc. (NASDAQ and TSX: CIGI), today released an insight on Time to Glance at the Domestic Investor Market and its Potential. This insight shows the potential of the domestic investor market in Indonesia in 2021.
As 2021 is still beset with an unstable economic situation, Indonesia's capital flow into property will be affected. The domestic property market will continue to be affected by the demand or expectation for price discounts. Most investors, even the small ones, are still expecting to receive favourable pricing.
Steve Atherton, Head of Capital Markets & Investment Services of Colliers International Indonesia, mentioned: “The reason that property developers must seek discounted prices is to preserve their minimum expected profit margins. The future revenues will need to be reduced to reflect a slower U-shaped recovery and, therefore, the cost of the land needs downward adjustment. Or, for income-producing assets, the time to fully lease a building (or sell strata units) will take longer. Therefore, rent prices and marketing incentives will need to be adjusted. Consequently, the price should reflect these realistic factors.”
Opportunity to Raise Property Developers’ Capital
As current travel restrictions can be a challenge for foreigners, the opportunity for foreign decision-makers to visit and meet clients in person and conduct site inspections can be quite limited. Developers with more established businesses and local teams on the ground may be more likely to start a new project. This also applies to foreign companies that invest their capital with local developers if they already have a representative office and people on the ground.
Investors Turn to the Public Market
Apart from the role of the government, which can help to boost the amount of capital directed towards property assets, many investors would like an opportunity to invest in the public property market. It can be an alternative that will bring fresh opportunities to deploy capital. Indonesia has created a public Real Estate Investment Trust (REITs) called Dana Investasi Real Estat (DIRE). DIRE offers a huge opportunity for the public to invest in larger institutional real estate where they buy shares in large buildings or the portfolios of larger institutional types of assets.
Monica Koesnovagril, Head of Advisory Services of Colliers International Indonesia, mentioned: “As the global economy is slowing down, Indonesia's investment market relies predominantly on domestic investors, both in terms of value and the number of projects. This dominance of domestic investment was getting stronger in Q3 2020, reaching about 51% based on existing data in Badan Koordinasi Penanaman Modal (BKPM). This shows that domestic companies still had the confidence to invest in Indonesia. Therefore, we see that domestic investment has a more significant share, which could take up to two or three years.”
Indonesia Investment Area Opportunity
Greater Jakarta, especially DKI Jakarta, is currently still dominating location-based investments, both in terms of value or number of projects, with Central, East and West Java opening opportunities in the industrial and logistics areas. The island of Bali is now also starting to slowly become a target for industrial investment. It shows how there are now more opportunities for investment, not only for domestic investors but also for foreign investors in the future.
To read the full recommendations, please refer to the full version of the insights. Click here to download.