Even without clarity on foreign investment, the Indonesian property market is strong and on a sound footing. Demand, especially from end users, is robust, the macroeconomic situation is relatively good – growth rates are high and inflation is low – and direct investment is at record levels.

The property market, especially at the high end, is exceptionally competitive. Developers are becoming more creative and innovative with their plans and in their marketing, and the Indonesian capital, like many cities in Asia, has an increasing number of semi-iconic apartment buildings. The features and amenities being offered are up there with anything that can be found in Singapore or Bangkok.

HIGH-END DEVELOPMENTS: Pools, restaurants and spas are common these days in most high-end developments, and the more aggressive of the developers are starting to experiment and push limits both in terms of design and features.

Ciputra World 2, a $111m double-tower condominium development in Kuningan, boasts some lofts built in an interlocking style that allows for 7-metre ceilings and access from two floors. The complex, which broke ground in January 2012 and will be completed in 2014, will also have infinity pools, libraries, saunas, spas and landscaped gardens.

Kemang Village, a condominium development in South Jakarta, is offering pet balconies. A host of other such structures is being put up in the city, including Keraton Residences – which will feature room service, private lifts and 180-degree views of the city – Raffles Residence at Ciputra World and the Nautically inspired Regatta Apartments, while Kempinski Private Residences boasts a helipad.

REACH FOR THE SKY: Jakarta is sprouting skyscrapers. According to the Council of Tall Buildings and Urban Habitat, the city has 70 buildings of over 150 metres in height, the definition of a skyscraper. That is up from 45 in 2009, and it is expected the city will have 150 such structures by 2015, and 250 by 2020.

One of the most sought-after luxuries offered is green space. Because Jakarta’s parks are few and the city otherwise has very little in the way of outdoor space, developers are seeing the value of building gardens around or on top of their structures. Playgrounds, jogging tracks and well-laid-out public spaces are central to the pitch these days.

Despite the high demand and the current strength of Indonesia’s economy, developers still engage in aggressive and increasingly creative marketing. They sell within networks of high-net-worth individuals, often to family members, fellow board members and business partners of existing clients. They also offer discounts for early buyers and hold co-marketing events with high-end brands, such as Mercedes.

ENCOURAGING NUMBERS: The numbers indicate a strong and growing market in Jakarta, with good sales and high demand. Prices for condominiums in the central business district on a sq metre basis were up 13.6% in the second quarter 2012 over the first quarter of 2012, according to Cushman & Wakefield’s “Condominium Snapshot”. The consultancy also recorded 17.6% growth in the prime area of the city. According to property consultant Knight Frank, the high end of the market is particularly strong, with prices up 28.5% year-on-year (y-o-y) in the second quarter of 2012. Total condominium supply in Jakarta in the third quarter of 2012 was 100,401 units.

Despite the strong performance of the market, some concerns remain. The condominium segment is exhibiting signs of being overheated, especially at the high end. The broad market seems to be relatively stable. According to Bank Indonesia’s “Residential Property Price Survey”, the residential property price index was up 4.25% y-o-y in the third quarter of 2012. However, given the rapid uptick in prices taking place at the high end, there is rising concern about the sustainability of the increases and the stability of the market. The aggressive marketing may indeed be less a sign of strength than a sign of oversupply in some segments of the market. The amenities that are being offered may be indicators of the city’s wealth and real demand for well-appointed accommodations, or it could suggest that this level of marketing is needed to move the properties.

SUPPLY CONCERNS: A particular worry is the coming supply. So far, demand has kept pace with the rapid increase in the number of units being made available. In 2012, and again in 2013, over 20,000 new apartments were released, more than double the number of condominiums that hit the market over each of the previous five years.

According to real estate consultant Cushman & Wakefield, supply increased by 18.8% y-o-y in the third quarter of 2012. Worryingly, yields are beginning to approach bank deposit rates, a clear sign that prices are getting high and one less reason for investors to deploy capital into property.

Vacancy rates in the condominiums-for-lease category have been climbing steadily over the past few years, rising from 20% in 2007 to approximately 30% in the third quarter of 2012, while condominium sale prices appear to be stabilising, with prices in the central business district in the third quarter of 2012 up by 4.4% on the second quarter.

The central bank’s decision in 2012 to set the loan-to-value ratio at 70% may be beginning to have an effect. While industry figures insist that the move had little impact on the market, they concede that it may result in a consolidation phase for prices.

One of the factors that is balancing the new rule is the aggressive push by the country’s banks to gain a greater share of the mortgage market. While it may be more difficult for people to qualify, the banks are trying to secure the custom of a bigger percentage of the qualified purchasers that remain, and this could be drawing more people into the market.

MORTGAGE WAR: The mortgage war began a number of years ago as Bank Indonesia interest rates began to fall, optimism rose and banks started to find that mortgages were under-represented on their balance sheets – mortgages as a percentage of GDP were just 2.7% in 2007. In 2009 Bank CIMB Niaga took its average mortgage rate down to 10% from 15%, offered a fixed rate for two years, and would give customers with deposits equal to 147% of their mortgage a special rate. Bank Tabungan Negara (BTN) capped its mortgage rate at 9.9%. Bank Central Asia offered a 9.9% fixed rate for two years.

Since then the banks have only become more proactive. In early 2012 Bank Central Asia began offering 8% loans fixed for 55 months. BTN started offering 7.49% for two years, while Bank OCBC offered 9.5% fixed for five years and 8-8.75% fixed for shorter durations. The trend is likely to continue, with money continuing to pour into the region from overseas and inflation appearing to be tame, at 3.5-5.5% over the past year. The conditions that led to the start of the mortgage war still seem to be in place.

BANKS HOLD THE KEY: The property boom is as much a banking story as it is a developer one. While the aggressive marketing of condominiums is more obvious, it may in the end be the marketing of money that will drive prices in real estate – less of a matter of pet balconies and more one of basis points.

If this is the case, the property market is well positioned. The banking industry is in good shape. Loan growth is running at 20%-plus per year, and was 24% in 2012. The industry is highly competitive, with around 120 banks operating. Capital is high at the banks, non-performing loans are low and foreign financial institutions are active. It has all the elements needed for good pricing and prudent lending, and the sector seems to be well supervised. Bank Indonesia has been cautious with interest rates, and got ahead of the news by requiring more money down from those seeking residential mortgages.

However, for that reason, the banking industry should be carefully watched. It the property sector is more about money than buildings, the state and practices of the banks are of the utmost importance. Because of this, the mortgage war could in the end be the source of problems to the same extent as it has been the driver behind the recent price rises. If the banks attempt to build their loan books too aggressively for the sake of fees or market share, it is possible that credit quality could slip as a result.