Interview: Muktar Widjaja
What are the factors that have caused property prices to increase in recent years? Have speculators contributed to the rise in prices?
MUKTAR WIDJAJA: In the past, property prices have typically grown at a rate no more than a couple of percentage points above the inflation rate. However, over the past couple of years, we have experienced a single-digit inflation rate, while property prices have increased by more than 30%. Concerns that speculation has been a contributing factor are not without justification, but if we examine the situation more closely it becomes clear that there is no cause for alarm. The improved performance of the market is based on strong macroeconomic fundamentals, combined with lower than average interest rates. With GDP growing at a rate of 6.5% per year, and a steadily improving income per capita, our middle-income market is expanding at an accelerated pace. Additionally, the country continues to have a very low mortgage-to-GDP ratio, and there is a significant undersupply of affordable quality housing. All of these factors, combined with the fact that banks at present offer the lowest mortgage rates in the history of the country, have contributed to the current state of our industry. If banks had adopted a less conservative approach to mortgage lending and offered zero down payment options or the ability to have second mortgages, or the rejection ratio for mortgages were to experience a sudden decline, then that would be an indication that banks are trying to purposely stimulate the speculation market. However, none of those things have occurred. Rejection rates have remained at around 35%, which is quite normal for the industry. We believe that this truly is an opportune time for all those in the real estate market – from developers to the end users – to take full advantage and to capitalise on the positive growth of the market in its present state.
Do township developments represent a significant opportunity for investment?
WIDJAJA: For the reasons mentioned above, including the low mortgage-to-GDP ratios as well as historically low interest rates, we are seeing a strong rise in demand for residential properties. However, what separates the residential market from any other segment is the fact that there is such a vast under-supply of quality, affordable housing in this country. Statistics suggest that demand exceeds supply by nearly 800,000 homes per year. This represents an opportunity for those developers that have the land bank to develop large quantities of homes in a single cluster to capitalise on economies of scale. Additionally, as cities like Jakarta are now experiencing overcrowding at an exponential level, township developments just outside major city centres, like our BSD city, are an attractive alternative to city living. The key is to provide communities with adequate supporting facilities and high-quality infrastructure.
To what extent are current regulations adequate in terms of attracting foreign ownership?
WIDJAJA: It is a misconception that foreigners cannot buy property. In fact they can. Foreigners are allowed to hold right-to-use land titles, but their ownership rights, although renewable, have a shorter time period than those granted to locals. This may not provide foreigners with the certainty they might want to consider investing here. We must improve the regulatory environment to make sure Indonesia is competitive with the regional group.
Indonesia continues to miss out on a vast potential economic reward that would not only benefit developers, but would have a multiplier effect that would contribute positively to the country’s economic base. I understand there are concerns regarding a potential increase in lower-end housing prices, but if other countries can implement policies that permit foreign ownership, then surely we can as well.
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