Interview: Santoso Gunara
To what extent does the future growth of the real estate sector depend on successful implementation of the 2011 Land Acquisition Law?
SANTOSO GUNARA: Land acquisition is the single most complicated aspect of property deals in Indonesia. There are a significant number of laws, many of which have been inherited from the past and have never been modified. Property developers have to go through legal procedures solely related to land ownership. The government can step in to address these issues. If not, the cost of investment in Indonesia increases and it becomes difficult for any investor, particularly foreign ones, to understand these laws. However, I am hopeful of progress in this area. The major issue going forward will be the execution of the regulations and the side effects of that execution. Foreign investors would like to have some certainty. Since the benefits of new property to both the city and the country are great, developers persevere through this lengthy acquisition process. However, these burdens are unnecessarily heavy and it is clear that land acquisition in Indonesia needs to be reformed and streamlined.
Is Jakarta experiencing a real estate bubble, and at what point will the current pace of rising prices no longer be sustainable?
GUNARA: When you look at the price of properties in Jakarta, there are several variables to understand. Many people probably never look back at historical prices or at regional comparisons, but this is necessary to understand the price increase of properties in Indonesia. Looking at property prices from the 1990s until now, the rise in prices has not outpaced that of our regional neighbours. For example, prices are not rising higher than Malaysia or Singapore, as these countries have experienced much higher price levels than we have in recent years. In Jakarta specifically, property prices have gone up very fast, but there will be more of a price adjustment than a bubble. The term “bubble” would imply a sharp drop in prices such that they become unsustainable, but I do not see this happening in Indonesia. When you look at the growth of Jakarta’s population combined with the limited supply of property, it becomes almost impossible to consider this bubble-burst scenario.
How will the weakened rupiah influence property developers and their activities in the country?
GUNARA: Indonesians, especially the older generation, are not panicking, as we are used to currency fluctuations and have seen worse fluctuations in the past. On a global level, some countries actually purposely weaken their currency. Here in Indonesia, there is a sentiment that the rupiah must be strong all the time, but this is not necessarily true as currency exchange is simply another financial instrument.
While most believe that a strong US dollar and a weak rupiah cannot benefit Indonesia, it actually depends on timing, what industry you are in and how you control these instruments. That said, a weakened rupiah has led to higher construction costs. Property developers will have to absorb some of the greater construction costs by adjusting land value. However, the final selling price will remain about the same due to the reactivity of land prices, which can absorb increases in construction cost.
In what way will the Jakarta Monorail and Mass Rapid Transit system affect real estate prices?
GUNARA: Jakarta is similar to other sprawling cities in that people do not want to drive across the city just to reach a particular destination. As such, developing real estate near public transit hubs is lucrative and we are lucky that there will be major public transit hubs located near SCBD. Foreign investors are looking at this factor as well. Construction groups are eager to develop buildings that provide useful accessibility to urban and national mass transportation, and there is a drive to develop areas that have strong linkages in terms of property and mass transportation options.
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