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February 6, 2017

Indonesia starts this year on a strong footing, after the country’s financial markets posted an extremely good 2016. The Southeast Asia nation has also benefitted from surging commodity prices and an increase in overseas real-estate investors who have been lured by an emerging middle class.

So, what to expect from 2017?

Under U.S. President Donald Trump’s tenure, Asia may be a lower priority than under Barack Obama and his “pivot to Asia” stance. While the Trump administration are staunchly hawkish on China relations and may seek allies in Asia, Indonesia is likely low on the priority list. U.S. investment into Indonesia has been scarce while China, via the Asian Infrastructure Investment Bank, and Japan, via the ADB, have – by contrast – used infrastructure investment to build ties.

Closer to home, Indonesian President Joko “Jokowi” Widodo has initiated a relatively successful tax amnesty to lure back overseas and undeclared domestic assets. His aim is to spend heavily on much-needed infrastructure. As one of his first steps on taking office, he abolished a decades-long gasoline subsidy, without much backlash, which has also freed up cash in the budget.

Such moves make hay with the emerging middle class and jobs are aplenty, relatively speaking. The immediate gains will feed greater consumer spending and increased demand for retail space while the manufacturing sector will require more warehouse and industrial space. The office sector is oversupplied, and rents and capital values will soften.

Read: Tech sector’s growing impact on Jakarta’s Office space

Overseas real estate investors pumped at least US$2.8 billion into Indonesia last year, according to Reuters, including a US$1 billion tower backed by the China Communications Construction group. Mitsubishi, Tokyu Land, Hongkong Land and Sime Darby also have deals under way in Jakarta and nearby. With 200,000 people moving to Jakarta each year and a young, middle-income population of 55 million families, there is strong demand from owner/occupiers – the underpinning of a stable market.

While residential has been sluggish, Indonesia has made it increasingly easier to own a home. In 2016, Bank Indonesia cut interest rates three times, a total of 150 basis points, to 4.75 percent, and lowered minimum down payments. According to Indonesia Property Watch, property sales will grow at least 15 percent this year, the first annual growth since 2013.

Business is good, and easier. The country rose 15 places in the World Bank’s “Doing Business” index, putting it among the top-10 gainers, although it is still ranked 91 worldwide. Business-friendly moves include abolishing minimum capital requirements for small- and midsize businesses, and introducing online tax filings.

All in all, 2017 is looking bright for Indonesia. What’s next for Indonesian hospitality sector?

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Todd Lauchlan

Country Head, JLL Indonesia

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