INDONESIA ECONOMIC FORUM presents:

Indonesian Property Round Up

November 28, 2017

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The property sector is a barometer that represents a country's economic growth. It can appreciate because the sectors related to the property sector, either directly or indirectly, are numerous. Real Estate Indonesia (REI) states that there are 174 sub-sectors manufacturing property support, not including distribution and trade.

In the last seven years, total banking credit to the property sector increased by 310%, from Rp 241.66 trillion in 2010, to Rp 755.12 trillion in July 2017. In Indonesia the development of the property sector, particularly housing, was achieved by individuals rather than by involving financial institutions.

With that assumption, the amount of money that people spent on the property sector in the period 2010-2017 outside the banks financing scheme was more than Rp 514 trillion. That means the total public property spending in the last seven years is estimated at around Rp 1.1 trillion.

Table I: Total of Banking Credit to the Property Sector

2010-2017

Year

Total Stated Credit

2010

Rp 241,66

2011

Rp 301,27

2012

Rp 373,72

2013

Rp 472,90

2014

Rp 554,66

2015

Rp 620,46

2016*

Rp 663,15

2016

Rp 713,42

2017*

Rp 755,12

Source: BI
*July 

With the total credit to the property sector as of July 2017 at Rp 755 trillion, an increase of 17% over the  July 2016 amount of  Rp 4,453 trillion, is the third largest financed sector after, the working capital loans of Rp 2,050.6 trillion and investment credit of Rp 1,117.7 trillion. The Governor of Bank Indonesia, Agus Martowardoyo, said that credit growth in June 2017 is predicted to experience a slowdown compared to 2017 which reached 8.6%.

Indonesia Property Post-Crisis

In the early 1990s Indonesia experienced an economic bubble marked by a boom in the property sector. The property sector was blamed for the monetary crisis that occurred in 1997, which later became an economic and political crisis. When analyzed, the economic bubble triggered by growth in the property sector occurred due to the fragile structure of the banking sector. Under such conditions, banks were over-confident with high-risk property financing schemes. About 70% to 80% of property project finance comes from banking.

It was time for banks to take risks, given the amount of third-party funds collected, as a result of the banking policy package of October 1988 (Pakto 88). The funds had to be disbursed in the form of credit.

On the other hand, property booms occurred in several Southeast Asian countries adjacent to Indonesia, like Malaysia, Singapore and Thailand. As a result, in a relatively fast period the market became saturated. In such conditions, the banking system becomes very vulnerable. There was a shake out in the regional market, when the South Korean Won and Thailand’s Baht depreciated by 13%, it sent  negative sentiments to the Rupiah. People competed to withdraw their funds from banks to be converted to foreign exchange, particularly the United States Dollar.

Banking collapsed, and all property development stalled. Hundreds of developers suffered, without exception, starting from small first time developers to Ciputra class companies. No less than 90% of conglomerate assets with debt exposure to Bank Indonesia Liquidity Assistance (BLBI) were taken over by the Indonesian Banking Restructuring Agency.

After the crisis passed, the composition of property project financing, especially non-landed housing changed; the source of the bank's organic fund was no longer the majority, ranging from 20% to 30%. The rest was in the form of corporate equity. Hence, a new phenomenon emerged where major projects were generally built as joint ventures of several development companies. They shared capital, profits and risks because it was safer. In general, the development of the property sector in Indonesia is differentiated by region, product type, company, developer, and price.

Settlements

Residential development in the areas of the current economic centre began to move from landed housing to high-rise buildings or flats. This was related to the increasingly limited land in the urban areas. Consequently, the developers who built high-rise buildings were large-scale due to the development of flats done by way of non-stop building. It required relatively large capital. In general, high-rise building projects were located in the centres of economic activity, where developers could integrate these vertical settlements with office buildings, shopping malls and recreation centres in a superblock project. In fact, for property giant companies such as Lippo, Agung Sedayu Group, Agung Podomoro, Sinar Mas, Ciputra and others, the construction of vertical settlements was part of the development of a 'new city'.

In rural areas, residential construction was still in the form of land housing and managed by low and middle-class development companies. Most simple housing development for low-income communities (MBR) was also available in these regions. The construction, in addition to the housing SOEs, Perum Perumnas and PT Pembangunan Perumahan, was also carried out by local development companies.

The Directorate General of Housing Provision at the Ministry of Public Works and People's Housing (PUPR) said that by 2015 the backlog or gap between the number of houses built and the number of houses needed would be still around 13.5 million units. The Central Bureau of Statistics (BPS) stated that 14 million housing units would be needed.

In 2015, the government launched the 'Million Houses' program. For 2016, the government targeted the construction of 1 million subsidized housing units with a range of Rp 90 million to Rp 150 million, of 36 square meters. The target of housing construction for low income (MBR) is 700,000 units, while for non-MBR is 300,000 housing units. The 'Million House' program launched by President Jokowi is intended to push the housing backlog in Indonesia down to 5 million units by 2019.

No.

Major Players

1

Sinar Mas Group

2

Ciputra Group

3

Pakuwon Jati

4

Lippo Group

5

Summarecon

5

Pembangunan Perumahan (Persero)

6

Perum Perumnas (Persero)

Apartments

In 2016, Indonesia had 400 apartment buildings consisting of a total of 210,000 units. Until 2019, 114 new apartment projects are being built and there will be an additional 60,000 units. Apartment dwelling is still concentrated in the major cities of business and tourism activity centres.

In addition to residences, people buy apartments for investment purposes. They earn income from rent and gain upon price increases. For example, in the past 10 years apartment prices per square meter in the CBD and Jabodetabek premium areas increased by 300% to 400% from Rp 10 million in 2007 to Rp 40 million - Rp 50 million in 2017.

No.

Major Players

1

Agung Podomoro

2

Sinar Mas

3

Intiland

4

Ciputra

5

Artha Graha

Office Space 

In the 1990s there was a change of perception about office space. Previously, the public perceived that the office of an institution or company must stand alone. But as land becomes more limited in the centers of economic activity, the leasing of office space becomes a very promising business, especially when the economy grows significantly.

Business office space demands the owner to be able to read the economic movement in the next three to five years, considering the construction takes between one to three years. Since 2014, Indonesia's economy has grown 5%. This figure is considered very conservative or low for Indonesia which has the potential to grow above 6%.

On that basis, it is estimated that in the next two to three years, the economy will grow above 6%, which means that demand for office space will increase significantly. Data from Colliers International Indonesia Research stated that during 2016 there was additional office space supply in Jabodetabek area from the construction of 12 new office buildings, with total space of 574,386 square meters.

During 2017-2018 in this region 58 new buildings with a total area of 2,629,708 square meters of office space will also be built. Of the 58 new buildings, 23 were completed in 2017 that generated an additional supply of 1,009,348 square meters.

Some Indonesian property research institutes published data that currently total supply of office space in Indonesia is estimated at 9 million square meters, with occupancy rate of 85% to 87%; 80% to 90% are located in Jabodetabek.

No.

Major Players

1

Mulia Group

2

Dua Mutiara

3

ArthaGraha

4

Sinar Mas Group

5

Greenwood Sejahtera 

Commercial

Indonesia is one of the most consumer friendly societies in the world. For decades the consumption sector became the engine of Indonesia's economic growth. As proof, Jakarta has the most number of malls versus any city in the world. Until 2017, no fewer than 200 malls were spread throughout Jabodetabek (the metropolitan conglomeration of Jakarta and its satellites).

The total area of commercial space in Jakarta is equivalent to 600 football fields. That is just commercial space in the form of malls, not including markets or shops. According to Strategic Advisory Coldwell Banker Commercial Indonesia, until the second quarter of 2016 the total commercial space in Indonesia had reached 10.7 million square meters.

It is not surprising that average rental rates of commercial or retail space in primary locations in Indonesia ranged from Rp 200,000 to Rp 450,000 per square meter per month. In fact, in Jakarta, Bali, and Bandung the price is far above the average of  other cities; between Rp 660,000 to Rp 715,000 per square meter per month.

In 2017, along with the widespread disruption of information technology where some people began to divert their mode of shopping to online shopping, shopping centers began to be abandoned. Many malls started to lose their visitors because it was no longer profitable. This is due to the increasing number of fintech transactions.

Bank Indonesia published the data that in 2016 the total value of online transactions reached US$ 14 billion or around Rp 190 trillion, and in 2017 was expected to grow to US$ 20 billion. Public funds to the amount of Rp 190 trillion, previously spent in malls and shopping centres, are now transacting through the internet.

On the other hand, the e-commerce industry in Indonesia is growing significantly. All of the world's e-commerce giants have entered Indonesia, holding a local start-up company. This development will certainly reduce the occupancy rate of commercial space. The phenomenon that then happens is the conversion of commercial space into office space, residential housing, or hotels. Only shopping centres located in tourism areas will survive.

No.

Major Players

1

Sinar Mas Group

2

Agung Podomoro

3

Ciputra Group

4

Lippo Group

5

Djarum Group

Hospitals

Based on the data from the Center for Financial Transaction Reporting and Analysis (PPATK), in 2011, the total foreign exchange that flowed abroad for medical costs from Indonesia was estimated at Rp 110 trillion. The number is sure to grow from year to year. That number also triggered a number of large business groups to enter the hospital business.

According to data from the Directorate General of Health, the number of hospitals in Indonesia until 2013 reached 2,173 units. That included public hospitals (1749 units) and specialist hospitals (424 units). In terms of ownership, government hospitals owned 946 units, private non-profit 694 units, private hospitals 469 units, and hospitals owned 64 BUMN units.

In Indonesia, each year an average of 100 units of hospitals are built, most of which are private hospitals. The growth of the hospital industry is influenced by several factors, such as local economic development, availability of medical personnel, investors, and market share. Business groups that have entered the hospital industry include Lippo, Mayapada, Ongko Group, Sinar Mas, Bosowa, Djarum, and Jababeka.

One of the most aggressive conglomerates in building a hospital network is PT Lippo Karawaci Tbk. With their Siloam brand, the hospital's revenue contribution to holding is relatively significant. In 2012 the revenue reached Rp 2.41 trillion. The business expansion of Siloam hospital was not only in Jakarta, but has expanded to Bali, Makassar, Palembang, Malang, Medan, Banten, Ambon, Manado and other big cities.

No.

Major Players

1

Lippo Group

2

Ongko Group

3

Mayapada Group

4

Sinar Mas Group

5

Bosowa Group

Hotels

In the next five years, the tourism industry will become one of Indonesia's economic growth engines. It was confirmed by President Joko Widodo on March 14 when setting 10 prominent tourist destinations to be developed. The total land area of the ten tourist destinations reached 9,035 hectares with a total budget of US$ 20 billion. If in 2016 the number of foreign tourists visiting Indonesia reached 12 million, President Jokowi has set a target of 20 million visitors by 2019. Obviously, this is a great opportunity for the hospitality industry.

Table II: 10 Tourism Destinations To Be Developed

No.

Tourism Destination

Land Area (Ha)

Investment (US$ Billion)

1

Danau Toba, Sumatera Utara

500

1

2

Mandalika, Nusa Tenggara Barat

1,035

3.3

3

Kep. Seribu & Kota Tua, Jakarta

1,000

1

4

Tanjung Kelayang, Bangka Belitung

1,200

1.6

5

Wakatobi, Sulawesi Tenggara

500

1.4

6

Tanjung Lesung, Banten

1,500

5

7

Pulau Morotai, Maluku Utara

300

3

8

Borobudur, Jawa Tengah

1,000

1.5

9

Bromo Tengger Semeru, Jawa Timur

1,000

1

10

Labuan Bajo, Nusa Tenggara Timur

1,000

1.2

             Source: Ministry of Tourism Republic Indonesia

Based on data from the Central Bureau of Statistics (BPS) which was updated on 3 April 2017, there were 2,387 hotels in Indonesia with 233,007 rooms. Statistically, each hotel employed 87.7 employees. The average number of guests per day reached 174,168 people, while the occupancy rate of hotels in Indonesia reached 74.7%. The average hotel guest consisted of 135,480 domestic tourists and 38,688 foreign tourists.

No.

Major Players

1

Kompas Gramedia Group

2

Setiabudi International

3

Sahid Group

4

Nugra Santana Group

5

CT Corp

Industrial Area

The role of the region on the growth of the national industrial sector has been quite significant, contributing 40% of the total value of non-oil exports. Industrial zones are also the most important part for attracting investment. About 60% of the total investment is currently in industrial areas. In addition, industrial estates can also be referred to as centres of employment. Currently, each hectare of industrial estate employs 100 employees.

The government and all industry stakeholders are focusing on reducing logistics costs, particularly those related to transportation networks. The northern part of West Java is the location of 60% of Indonesian industry. One effort to improve the efficiency of transportation time and cost, is done by dredging the river connecting Muara Baru to Cikarang, West Java, to be a channel for container transportation. The joint project between Pelindo II and West Java Provincial Government is intended to shorten travel time between industrial areas in Bekasi, Karawang and Purwakarta to or from Tanjung Priok Port, Jakarta.

Another policy to improve industrial efficiency by the government is to establish nine special industrial estates based on the availability of raw material, namely Siak, Boyolali, Sei Bamban, Bangka, Majalengka, Bintuni, Buli, and Kulonprogo. In addition, there are three industrial areas that are based on CPO in Sei Mangkei, North Sumatra, export-oriented industrial areas in Dumai - Riau, and the industrial area of Bitung's finished product, North Sulawesi.

Table III: 12 Special Industrial Zones 

Industrial Zone

Type of Industry

Siak, Riau

Oil and Gas Support

Boyolali, Jateng

Garments-Apparel

Sei Bamban, Sumut

Rubber Products

Bangka, Babel

Lead-based Industry

Majalengka, Jabar

Textiles

Gresik, Jatim

Petrochemicals

Bintuni-Tangguh, Papua Barat

Gas-based Petrochemicals

Buli, Maluku Utara

Ferronickel Industry

Kulonprogo, Yogyakarta

Iron and Steel Industry

Sei Mangkei, Sumut

CPO

Dumai, Riau

Export-oriented Industry

Bitung, Sulut

Assembling finished goods

   Source: Ministry of Industry, Republic of Indonesia

 

In Indonesia, there are currently 232 industrial estates with a total area of approximately 80,000 hectares. 165 industrial estates are located in the northern part of Java island and 67 are scattered in Sumatra, Kalimantan, Sulawesi, Maluku, Nusa Tenggara, Bali and Papua.

The Ministry of Industry targets that by 2019 there will be 14 new industrial estates with a total land area of 30,000 hectares. The opening of 14 industrial estates is expected to create 900,000 new jobs. This is part of the National Industrial Development Master Plan 2015 - 2035, which targets the construction of at least 36 new industrial estates with an additional minimum area of 50,000 hectares.

The Ministry of Industry said that every year there is a demand for opening new industrial areas of 1,200 hectares. In the next five years, 60% of industrial land demand will still be concentrated in Java. To build 6,000 hectares of new industrial estates will cost around Rp 19 trillion.

No.

Major Players

1

Jababeka Group

2

Suryacipta City of Industry

3

Lippo Group

4

East Jakarta Industrial Park

5

Kawasan Industri Indotaisei Kota Bukit Indah

By Nalin Singh