Investing in Jakarta real estate: opportunity or turmoil?

Dateline: Semarang, Indonesia

Jakarta’s real estate market has been in turmoil for several years now, undergoing the biggest increase in real estate prices of any world city, in 2012 and 2013. It has been outperforming cities that are well-known for their rapidly expanding real estate market, like Dubai and even New York. Although property price growth in Jakarta has tempered down a little in 2014 and investments in the city demand some extra attention, it’s still a very interesting real estate market.

Current real estate situation in Jakarta

Many Asian cities are dealing with rapidly growing property prices but Indonesian’s capital city of Jakarta has been the leader of the pack.

Jakarta’s property market has been on the top of Knight Frank’s Prime International Residential Index in 2012 with real estate prices increasing by an impressive 38.1%. Jakarta managed to stay on top of this list in 2013.

In 2014 the prices of prime residential property went up by 11.2% in 2014, which is still very significant. Although the property prices currently aren’t growing at the pace they used to, there are still options to benefit from the real estate price increases.

Jakarta has a very high density and its population is growing every year. This creates a high demand for property in the city. As the supply of available property is not sufficient to meet the demand, real estate prices are going up.

It is estimated that the availability of residential real estate in Jakarta, is only one-third of the demand. Many young couples saving up for their first house never get to buy because house prices increase faster than their savings. What’s driving the demand up even higher is the large amount of people buying second houses for investment purposes.

Indonesia is very strict about foreigners owning property. The situation in Jakarta is the same as that of Bali, where a foreigner can enjoy the comfort of a property but never technically own it. It’s not so easy to buy property in Jakarta but a lot of doors will open if you know and trust a local Indonesian person or marry one. It’s also possible to own property by setting up a company in Indonesia but it’s tricky.

Indonesia’s current president does have plans to change these strict rules on property ownership. By doing this he wants to spark foreign investments in the most popular Indonesian cities, which will give the government a significant tax income stream.

The thought behind this is that foreigners are already buying large amounts of Indonesian property anyway, through illegal constructions. The new rule will impose a luxury tax on these transactions so that the government can get a piece of the profit from property sales like this.

According to these new rules, it would be possible for foreigners to buy apartments that have a value of at least $210,000. The rules will apply to Jakarta, Bali Island and a couple of other significant Indonesian cities. There doesn’t seem to be a rush to get these rules pushed through, so investors have to be a little patient here.

What’s also interesting to know is that banks are making it harder for local people to buy a second house for investment purposes. For example, anyone applying for a loan at Bank Indonesia for a second house needs to pay a deposit that equals 40% of the real estate value.

Anyone who applies for a loan and already owns 2 or more houses would be required to pay a 50% deposit.

Regulations like this have caused the real estate prices to stop climbing in the explosive way they did before. It’s still possible for wealthy Indonesian citizens to buy second houses for investment purposes but it’s not so easy for the middle-class groups anymore.

Jakarta real estate market prospects

Colliers, a leading real estate company that performs worldwide research, has said that the real estate market in Jakarta will continue to grow in 2015 and 2016. The centre area of Jakarta will have the largest amount of construction projects.

These projects are aimed at people that want to live in close proximity to their work and young families that want to have shopping malls widely available.

Because this area has great accessibility to public transport and is very strategically located, there is good potential in apartment leases, according to Colliers. Occupancy rates for lease apartments in central Jakarta has been around 81% throughout 2014, which is 10% higher than the other areas.

This makes the risk quite low to partake in Jakarta’s apartment lease market.

Many apartments will be built outside of the CBD and in East and North Jakarta in the coming years. The Prime International Residential Index of 2014 has shown that Jakarta’s current growth is not as explosive anymore as it was, but it’s still on the high side compared to other world cities.

Jakarta’s most popular area to live in, by far, is the city centre. The congestion in Jakarta is one of the worst in the world and as a result, people want to live as close as possible to their workplace. As most workplaces are located in the centre area of Jakarta, this is where most of the people want to live.

Real estate in the centre of Jakarta makes for a very good and stable investment and is less likely to drop in value, compared to the outer areas of Jakarta.

To improve the traffic problems of Jakarta, a metro line is being constructed that should be finished in 2018. The areas around the metro stations are exploding in value as a result of this.

The land prices at the northern part of the new metro line have already shown a 30 to 40 per cent price increase. It’s expected that the southern part of the metro line will have a similar price explosion and turn into a new hotspot area.

This offers possibilities for those willing to invest in Jakarta’s growing real estate market and are looking for interesting areas to focus on.