Foreign Developers Bet on Indonesia Property as Mortgage Rules Eased
Foreign property developers, led by state-owned China Communication Constructions Group (CCCG), made the biggest investment in Jakarta’s residential property in nearly a decade this year as they bet on relaxed mortgage rules boosting demand.
CCCG’s $1 billion eight-tower complex is targeting young middle-income Indonesian couples and is one of the largest ever in the capital.
Japan’s Mitsubishi Corporation, Tokyu Land, Hong Kong Land, as well as Malaysian Sime Darby, have also signed deals in Jakarta and surrounding areas, according to data compiled by construction consultant BCI Asia.
The projects are estimated to be worth at least $2.8 billion, or the highest by foreign developers since at least 2007, and come despite a sluggish Indonesian property market.
“Our target market is young couples, young families. People who need housing with high accessibility,” said Ferry Thahir, a general manager at China Harbour Jakarta Real Estate Developer, a unit of CCCG. He noted that Jakarta’s gridlocked traffic made proximity to the city center vital.
Young middle-income Indonesian couples or families are estimated to already number 55 million, according to data from developer Lippo Karawaci.
CCCG is involved in residential projects in other Asian countries such as Myanmar and Malaysia, but in Indonesia it has up to now focused on infrastructure.
The Chinese state firm is planning another four residential projects in Jakarta, attracted by rising urbanization – an estimated 200,000 people move to Indonesia’s capital every year – and also moves to support the market.
“Efforts by authorities, like the easing of mortgage rules and the easing of tax rules on property sales, are starting to move the market,” said Thahir.
Foreign investment boom
Indonesia’s Investment Coordinating Board data shows foreign direct investment in all property segments rose to $1.67 billion in the Jan-Sept period, up from $1.48 billion a year ago, while the number of projects backed by foreign investors rose 34 percent to 842 over the period.
Weaker property sales have cut land prices in Jakarta, and Indonesian companies have teamed up with foreign companies for funding, said Theresia Rustandi, deputy head of property association Real Estate Indonesia (REI).
Mitsubishi’s joint venture with Bumi Serpong Damai aims to build 1,000 housing and retail units, while Sime Darby’s partnership with Indonesian developer Hanson Internationalwill invest Rp 11.3 trillion ($841.71 million) to develop a 500 hectare site.
A global slump in commodity prices has hit Indonesia’s property market. The value of property sales dropped 35 percent in 2014, 26 percent in 2015 and 49 percent in the first nine months of this year, according to research firm Indonesia Property Watch (IPW).
But Bank Indonesia has cut benchmark interest rates by a total of 150 basis points this year and lowered the minimum down payment requirement for home buyers, its second cut in two years. The government has also halved a tax on home sales.
Ali Tranghanda, executive director at IPW, sees property sales growing by at least 15 percent in 2017 to post the first annual growth since 2013.
Nonetheless, some domestic developers are more cautious.
“We are seeing recovery, but it will be gradual,” said Tulus Santoso, a director at Ciputra Development, adding that the market may struggle to absorb newly built homes.
source: reuters, jakartaglobe