In order to boost Indonesia’s property sector, which is currently seeing a slowdown, the government plans to allow foreigners to own high-rise properties in Indonesia. This has been a hot debate topic among the sector’s different players, with those arguing for and those against the idea. The Jakarta Post’s Sebastian Partogitalked to Coldwell Banker commercial strategic advisory director Tommy H. Bastamy to explore the issue further. Here is an excerpt from the interview: Question: How would you describe the current slowdown in the property sector? Answer: We are aware that the property sector’s current slowdown can’t be separated from our macroeconomic downturn, which has impacted many other sectors besides property. The property sector slowdown, fortunately, is not in terms of negative demand. The sector, both commercial and residential, is still growing positively, albeit at a lower rate.
The property sector’s current slowdown, however, is worse compared to that during the 2008 crisis, because at that time, we had better macroeconomic conditions, along with favorable prices of oil and commodities. At that time, the property sector also resumed its growth after three quarters. Today, we are going through an economic correction followed by the slowdown of real sectors. Back in 2008, the real sectors were the demand generator for the property’s sector. In spite of the current slowdown, many institutions, such as the World Bank, have forecast that Indonesia’s economic conditions will get better in 2016. With the recovery of vital sectors like retail, the growth in the property sector will likely increase. The government plans to allow foreigners to own high-rise properties in Indonesia to boost the sector amid the current slowdown. What is your opinion about this? The idea is good because foreign ownership of high-rise property has the potential to create new demands, thus positively impacting the sector’s performance. You talk about creating new demand — will there be a significant increase in high-rise property demand from expatriates, who make up only a small percentage of Indonesia’s population and are often in Indonesia for temporary work assignments? Well, the demand will come not only from expatriates in Indonesia, whose accommodation is provided by their companies. I also see great potential coming from foreigners who live outside Indonesia, who are interested in purchasing high-rise property not because they actually want to live here but to rent it to others. Many of them actually invest in property for the purpose of gaining profit.
In other words, they purchase a property and sell it when the price increases — just like Indonesians who live here and invest in properties in Singapore or Australia. I’ve also seen a shift in trends where expatriate workers choose to live in high-rise buildings instead of landed houses. A few years ago, lots of expatriates who came here brought their family members along with them, thereby requiring bigger places to stay and opting for landed houses. Nowadays, lots of them come with a small number or even without bringing their family members along. So, what matters most for them is living close to their workplace. How lucrative is Indonesian high-rise property for foreign investors? Indonesia’s property sector is still relatively young; it’s still developing. Because of this, property prices in Indonesia are still more competitive compared to other countries, in Southeast Asia or even beyond. Due to the competitive prices, the initial yield is also higher; thus, the capital gain is bigger. When foreigners are allowed to own high-rise property, prices will be corrected. Let me illustrate this point. In 2008, there was a correction in the global market, but Indonesia’s fundamentals were among those that did quite well and our economic stability was also quite good amid the crisis. Due to the global economic slowdown, foreign investors started to eye Indonesia as a great place to develop new properties, Indonesia’s low property prices being one of the reasons.
They partnered with local companies. And this led to the increased prices in the property sector. Foreign ownership will significantly impact the premium sector, paving the way for an increase of prices. Therefore, the government needs to set boundaries to protect the interests of people from middle and middle-lower socioeconomic brackets, where the real demands come from. Is the government’s proposed price cap of Rp 10 billion (US$724,217) adequate to protect people from the middle and lower-middle socioeconomic brackets from steep price increase? The Rp 10 billion price cap is quite reasonable because the population of expatriates is not too big here. The cap is necessary to prevent a gap between the luxury market and the lower-middle market, both of which constitute real demand for the property sector. The price cap alone, however, is not enough. The foreign ownership of high-rise property in a particular area could boost the image of that area, thereby raising property prices there to a premium level. In order to avoid this happening, maybe developers should not offer all of their units in a particular apartment complex to foreign owners. Some areas also need to be restricted from foreign ownership, because if the areas are tailored for foreign-owned high-rise buildings, the purchasing power of people from the middle class will be limited. The government should designate the main business districts of the city and special economic zones for foreign-owned high-rise buildings, so as not to affect the purchasing power of the middle class. When the middle class’ purchasing power is weakened, the demand for the property sector will decrease. What are the steps that need to be taken to boost the property sector? First of all, macroeconomic conditions need to be improved.
The property sector will be strong only when other sectors are strong. In times of slowdown like this, developers also need to prepare a more meticulous marketing strategy, covering price, development concept and theme, among other things, so that when the economy recovers, they are already well equipped to enter the market. ( sources by : thejakartapost)Back
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