Indonesia Real Estate Report Q4 2012

The Indonesia Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Indonesia's Real Estate industry.

The Indonesia Real Estate report examines the Commercial Office, Retail and Industrial segments in the context of a consistently strong performing market which, in spite of efforts to improve the business environment and continued investor interest, is slowing.

With a focus on the three principal cities of Jakarta, Bandung and Bali, the report covers the rental market performance in terms of rates and yields over the past 18 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of international headwinds on a market which has historically proven itself to be resilient. The key potential growth areas driven by increasing activity on the part of international investors, favourable fundamentals and the potential of the archipelago’s consumption driven economy are also explored alongside corporate growth strategies looking to both domestic and international channels for growth.

As such there is considerable optimism in the Indonesian commercial property market. The last few years have seen impressive growth in the Indonesian real estate sector. Rents were hardly touched by the global financial crisis and have, in fact, generally increased over the past few years. Our latest data collection in July 2012 revealed that rents continue to soar across the majority of cities and commercial real estate subsectors.

One substantial hindrance to both the industry and the economy as a whole is that Indonesia's physical infrastructure is substandard. The extent of future growth depends very much on the government’s ability to push through bureaucratic reforms that will allow much-needed infrastructure investment, and the recent approval of the land acquisition bill is an important step in the right direction

Key Points

- While Indonesia will likely outperform its regional peers in 2012, growth will slow from 2011's 6.5% rate as the economy faces both external headwinds and domestic constraints. We have downgraded our headline GDP growth forecast for 2012 from 5.8% to 5.4% as a result of downward revisions to our gross fixed capital growth (8.5% to 7.5%) and private consumption
(5.3% to 4.5%) forecasts, as we expect these sectors to be hampered by a deteriorating investment climate.

- We are maintaining our 6.9% growth forecast for Indonesia's construction sector in 2012.

Although construction activity in the first quarter of this year was a strong 7.8% year-on-year (yo-
y), the reversal in conducive monetary conditions for construction activity and the poor outlook for the global economy are expected to dampen construction activity over the rest of 2012. In addition, we see a real risk that the construction sector fails to realise its long-term growth potential, as there is a growing lack of political will to carry out the regulatory reforms required to unlock private sector investment demand. To capture this risk, we have revised down construction real growth to 7.7% (from 8.2% previously) per annum between 2012 and 2021.

- Our latest in country interviews – conducted in July of 2012 – and covering market performance for H112 reveal the market's strength, the industrial sector in particular has benefitted spectacularly by way of comparative annual performance. SHOW LESS READ MORE >

Executive Summary 5

SWOT Analysis 7

Indonesia Real Estate/Construction SWOT 7

Indonesia Political SWOT 8

Indonesia Economic SWOT 9

Indonesia Business Environment SWOT 10

Real Estate Market Overview 11

Market Analysis – Office 17

Rents and Yields 17
Table: Historic Rents – 2011-2012 (USD per m2/month) 17
Table: Net Yield, 2011-2012 (%) 18
Table: Terms of Rental Contract/ Leases - H112 18

Supply and Demand 18

Industry Forecast Scenario 19
Table: Forecast Rents - (USD per m2/month) 19
Table: Forecast Net Yield, 2008-2016 (%) 19

Market Analysis – Retail 20

Rents and Yields 20
Table: Historic Rents – 2011-2012 (USD per m2/month) 21
Table: Net Yield, 2011-2012 (%) 21
Table: Terms of Rental Contract/ Leases - H112 21

Supply and Demand 22

Industry Forecast Scenario 23
Table: Forecast Rents - (USD per m2/month) 23
Table: Forecast Net Yield, 2008-2016 (%) 23
Table: Indonesia Retail Sales Indicators, 2008 - 2016 24

Market Analysis – Industrial 25

Rents and Yields 25
Table: Historic Rents – 2011-2012 (USD per m2/month) 25
Table: Net Yield, 2011-2012 (%) 25
Table: Terms of Rental Contract/ Leases - H112 25

Industry Forecast Scenario 26
Table: Forecast Rents - (USD per m2/month) 26
Table: Forecast Net Yield, 2008-2016 (%) 26

Forecast Scenarios 27

Infrastructure Report 27
Table: Indonesia Construction And Infrastructure Industry Data 27
Table: Indonesia Construction And Infrastructure Industry Data 29

Construction And Infrastructure Forecast Scenario 31

Macroeconomic Outlook 37
Table: Indonesia - Economic Activity 39

Indonesia Real Estate Report Q4 2012

© Business Monitor International Ltd

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Real Estate Risk Reward Ratings 40

Real Estate/Construction Risk/Reward Ratings 40
Table: Asia Pacific Real Estate Risk/Reward Ratings 40

Indonesia’s Business Environment 40
Table: BMI Business And Operation Risk Ratings 41

Institutions 42
Table: BMI Legal Framework Rating 44

Infrastructure 45
Table: Labour Force Quality 47

Market Orientation 48
Table: Asia, Annual FDI Inflows 49
Table: Trade And Investment Ratings 51
Table: Top Export Destinations, 2001-2008 52

Operational Risk 53

Competitive Landscape 54

Company Profiles 57

Adhi Karya 57

Holcim Indonesia 58

Jakarta Propertindo 59

Lippo Karawaci 60

Pakuwon Jati Tbk 62

Semen Gresik 63

Demographic Data 65
Table: Indonesia's Population By Age Group, 1990-2020 ('000) 66
Table: Indonesia's Population By Age Group, 1990-2020 (% of total) 67
Table: Indonesia's Key Population Ratios, 1990-2020 68
Table: Indonesia's Rural And Urban Population, 1990-2020 68

BMI Methodology 69

How We Generate Our Industry Forecasts 69

Construction Industry 70

Bank Lending 71

Real Estate/Construction Business Environment Rating 71
Table: Weighting Of Indicators 72

Sources 74