Construction & Real Estate
From The Report: Indonesia 2012
View in Online Reader

Much of Indonesia’s construction sector is awaiting the unveiling of major infrastructure projects that will be necessary to unlock the high growth potential of the domestic market. The government has pledged to spend $150bn on infrastructure projects over five years in its 2011 budget, but sector figures are looking to see results, not just promises. The industry grew at 5.3% in Q1 2011, representing a slowdown from 2009, which reinforces uncertainties about material costs, legal issues, and bureaucracy-related project delays. Real estate, meanwhile, has a bright future, highlighted by surging demand and good value but undercut by potential bureaucratic bottlenecks. Interest rates have fallen below the 10% level, offering a record number of Indonesians the chance to buy their own home. Developers have not yet shown much interest in building low-cost housing, which is still the largest source of demand, primarily because margins are low. Reforms that would help the sector include more support for low-income housing, as well as a potential loosening of laws that currently restrict foreigners from buying real estate in Indonesia.

This chapter includes interviews with Muktar Widjaja, Chairman, Sinarmas Land; and Trihatma K Haliman, President Director and CEO, Agung Podomoro Land.

Articles from this Chapter

Overview

Ready to be realised: If regulatory barriers can be overcome, massive potential awaits
OBG
plus

As with many economic activities in Indonesia, it is the country’s unlikely geography that has determined the size, scope and characteristics of the construction industry. Indonesia is the world’s largest country composed only of islands, and the 15th largest by land area. Building ports, airport, bridges and other pieces of crucial infrastructure has always been a priority. The sector, consequently, is fragmented and features a wide array of players, local and national, large and small.…

Analysis

Putting it all together: Cement companies are preparing for significant growth
OBG
plus

There should be major growth for the foreseeable future in Indonesia’s cement market, as the country ramps up an infrastructure-building drive, addresses a housing shortage and attempts to match demand in one of the world’s most populous countries. Per capita consumption was about 165 kg in 2010, which is low compared to other developing markets – it is about 1000 kg annually in China and 350 kg in Malaysia. But there are still obstacles to growth in Indonesia, such as cumbersome bureaucracy…

Analysis

Making it work: The government is setting up agencies to encourage investment
OBG
plus

National leaders have zeroed in on public-private partnership (PPP) deals as their vehicle of choice for building the infrastructure needed to power economic growth. The PPP structure is fairly new, and is often relied on by governments that do not want to incur large debts by borrowing the complete cost of a project. ISSUES: Indonesia has yet to see a PPP through to completion. Many rural areas of the country remain relatively underdeveloped, for example. “Once you move outside of Java,…

Analysis

Keeping it green: New environmental initiatives are supplementing building projects
OBG
plus

In line with global trends, a green-building movement is taking hold in Indonesia. Companies are increasingly looking at the concept. Developers and contractors are taking note and the Green Building Council Indonesia (GCBI), formed in 2009, has published certification guidelines. Among the multiple state-owned building companies, Pembangunan Perumahan has embraced green building, declaring itself Indonesia’s first “green contractor” in 2008. It trumpets eco-friendly projects such as the…

Overview

Room for change: Huge demand underpins projected expansion
OBG
plus

The real estate sector is a microcosm of Indonesia’s entire economy. The market features surging demand, good value in a regional context, a bright future, and bureaucratic bottlenecks that, if unaddressed, could create problems in the future. As is often the case, it is the demographics that loom largest, and in the real estate sector this means a massive need for low-cost housing, something the private sector has shown little appetite or ability to provide. That could change, however, as…

Interview

Building opportunities: OBG talks to Muktar Widjaja, Chairman, Sinarmas Land
OBG
plus

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…

Interview

Trihatma Haliman, President Director and CEO, Agung Podomoro Land: Interview
OBG
plus

Interview:Trihatma Haliman What isidentified as areas of opportunity? TRIHATMA HALIMAN: Indonesia is currently experiencing one of its largest real estate booms in years. Foreign and local businesses continue to expand their operations, and a steadily increasing income per capita is driving demand for low- to middle-income residential properties. Indonesia still has a very low mortgage-to-GDP ratio, which, when combined with the fact that banks are offering their lowest mortgage rates…

Analysis

Without further delay: A new land acquisition bill will speed up much-needed development
OBG
plus

It is almost an universally held opinion in Indonesia that a long-promised land-reform bill will be a major catalyst for growth. After several years of delays, the reform, to make land seizures for public works easier, was finally passed by parliament on December 16, 2011. It is expected to take effect by January 16, 2012. This new law is the most anticipated of a series of coming legal reforms, and for the real estate sector it may mean a flurry of activity in 2012 and for years to come. REQUIRED…

Analysis

Outside looking in: Reforms to laws could see foreign investment bolster the economy
OBG
plus

Real estate professionals in Indonesia are convinced that one of the biggest things the government could do to juice the market is to lift restrictions on foreign ownership. Several such limitations in existence have put a lid on market returns and growth potential, they say. It is a tough call. Foreign ownership of real estate assets, particularly in prime locations such as central Jakarta, Bali’s beaches, or other prime pieces of waterfront could trigger a populist backlash. Like in many…

Analysis

Sharing the wealth: Expansion and growth is taking hold throughout the archipelago
OBG
plus

The real estate market has been focused on Jakarta for a long time, with a few other focus areas: Bali as a location for holiday homes, some industrial hives near resources and ports, and a few other exceptional areas. However modern development is starting to move beyond those areas. Several bedroom communities have sprung up to the east, west and south of Jakarta, which is remaking retail offerings through malls, hypermarkets and big-box retailers. Industrial growth is fuelling a similar…

Analysis

On the market: Several developers are listed on the Indonesia Stock Exchange
OBG
plus

Not all of Indonesia’s leading developers are publicly traded, but at present there are 21 stocks listed in the property, real estate and construction sector on the main trading board at the Indonesia Stock Exchange. This, alongside several other factors, means the outlook for 2011 is good. The group’s performance has been slightly less robust than that of the overall market in the first half of 2011, but was expected to do some catching up in the latter half of the year, according to research…