Sunday, January 16, 2011

Indonesia Real Estate Report Q3 2010

Key Insights on the Real Estate Sector of Indonesia
According to our in-country sources in Indonesia, the global financial crisis had absolutely no impact whatsoever on the commercial Real Estate sector.
Economic growth did slow marginally – from 6.1% in 2008 to 4.5% in 2009. The latest data suggests to us that GDP should expand by 5.2% in 2010. However, there has been an across-the-board rise in rental rates of around 20% in 2009. This rise has taken place in spite of vacancy rates that have been running at 15-20% for most kinds of commercial properties in the three centres – Jakarta, Bandung and Denpasar/Bali – for which we have gathered data. In one or two instances, such as industrial property in Bandung, the vacancy rate has been even higher.
We see the rise in rental rates as a fairly early sign of a rerating of Indonesian assets. Market protagonists – whether they be local developers/ landlords or foreign investors – see Indonesian real estate as being underpriced given the overall business environment and prospects for the economy. So too, it would seem, do the tenants. Looking forward, our in-country sources suggest that rental rates will continue to rise in the coming year or so and we agree.
This process can continue until the business environment deteriorates sharply – which we do not expect – or rental rates reach levels where they appear high by the standards of the commercial Real Estate markets in other countries in South East Asia.
The immediate impact of the rise in rental rates has been a corresponding increase in yields. Landlords have had no incentive to sell. The number and value of transactions has, therefore, been depressed. Looking forward, though, we expect that prices and capital values will rise relative to the increasing rental rates. Accordingly, we anticipate that yields will slip gradually, in each of the cities and subsectors, over the coming five years.
Interviews with our in-country sources were conducted in late March 2010.
Key Features Of This Report
This is the latest edition of a new series of industry reports published by BMI that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets. Once again, the questions that we seek to answer for each country remain as follows: What are the main issues that will matter to actors in and around real estate development in the country concerned, both over the long and the short term? What are the main constraints that they face? What are the key insights that one garners when one compares the real estate sector of the country concerned with its peers in other countries?
For Q3 we have introduced a very substantial new improvement to the reports. We have incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main sub-sectors – office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology sector of this report.

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