Even as Jakarta is in the midst of electing a new governor, the city, and the country at large, is revving up for growth this year.
While Indonesia’s GDP growth for the last quarter was weaker than expected at 4.9 percent and the overall growth for 2016 stood at 5.02 percent, the World Bank forecasts that country is projected to experience a 5.3 percent GDP growth this year. Finance Minister Sri Mulyani Indrawati announced earlier this month that the government would be spending more to contribute to economic growth in 2017. Fitch Ratings has also revised Indonesia’s credit rating to positive in December; this was followed by Moody’s change on government ratings from stable to positive in February based on the strength of the country’s structural reforms and the macroeconomic policies undertaken.
More international investors are being attracted to Indonesia as Jakarta’s property transparency improves faster than any other southeast country. In the latest JLL Global Transparency Index, Indonesia ranked 45th, ahead of the Philippines and Vietnam.
The oversupply of office supply that the capital city is currently experiencing looks set to ease from 2018 to 2021 says JLL report, Jakarta until 2024: Offices and Industrial May Outperform. Office supply in Jakarta is expected to grow 12 percent this year, before declining to just 4 percent per annum from 2018 to 2021 as office supply in the pipeline tapers off. This is partially due to the new development charges put in place in 2014, which has decreased the profits of developers who seek to redevelop sites into large office buildings.
“While current conditions are challenging, rents and prices in the Central Business Districts will start to recover from 2018,” says Regina Lim, JLL’s National Director, Advisory and Research, Capital Markets in Asia Pacific. “We see this as a buying opportunity, especially if stable political environment is to be expected for the next decade to boost economic growth and foreign direct investment.”
Upside for industrial
The logistics sector stands to benefit greatly with e-commerce rapidly taking off in Indonesia, a result of President Joko Widodo’s infrastructure investment and the loosening on foreign participation in several logistics sectors.
Last year, Alibaba acquired a controlling stake in Indonesia’s leading e-commerce platform Lazada. Major local retailers, Mahatari and MAP are making inroads online and Amazon is expected to enter Indonesia in the medium term as part of a regional expansion. The demand for warehouses has already seen three major prospects, backed by Singapore’s GIC and Mega Manunggal Property, under construction in Jakarta.
“Growing demand could spur rental growth, making it attractive for private equity groups, sovereign wealth funds and specialist logistics developers to invest in warehouses in Jakarta,” says Lim. “Regulations to encourage the creation of local REITS may also provide medium term exit options for investors keen to enter.”
But long-standing issues such as the lack of skills, low labour productivity and difficulties in doing business remain. The Indonesian government has to ensure these problems are being solved for investors to commit further to the Southeast Asian nation.