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Indonesia Real Estate Report Q2 2011
Business Monitor International, March 2011, Pages: 66
Indonesia Real Estate Report Q2 2011 - There is considerable optimism in the Indonesian commercial property market. Rents were hardly touched by the global financial crisis and have, in fact, risen significantly over the past two years. We expect rents in most cities and in each of the three sectors – office, retail and industrial – to rise further in each of the next two years.
The Indonesian economy is growing successfully. It slowed but did not go into recession during 2009 and bounced back in 2010. We have recently upgraded our forecast for 2011 GDP growth to 5.9%. Indonesia is somewhat isolated in terms of global trade with net exports contributing only 2.8% to GDP in 2009. Private consumption and capital investment make up the bulk of GDP. Consequently, even if there is a slowdown in the Chinese and/or US economies during 2011-12 this would have little impact on Indonesia's growth or, therefore, its property market.
What is noticeable, and unusual, from the picture of Indonesia's commercial property market is that increased rental returns are being reflected in increased yields. It is usual to see increased rental returns leading an increase in property values that erodes, or even replaces, any increase in yield. The explanation here seems to be that property owners/investors are content with the increase in rents and see no reason to sell. As a result there have been too few property transactions completed to show any significant upward trend in property prices.
In the residential sector, however, demand for luxury residential property – both purchases and rentals – has been weak since the end of 2009, and remained stagnant throughout 2010. There had been a plan announced by the government that would have allowed foreigners to buy property in Indonesia. However, the government reacted to the pressure put on it by later withdrawing that proposal. A compromise that appears to have greater chance of success has now been proposed. This would allow foreigners to buy long-term leases of up to 70 years, but not buy the freehold.
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