Indonesia has a surging economy, growing urbanisation, relative political stability and strong savings and income growth. Consumer spending is growing, particularly from increasingly affluent sections of the population. This is a population that has doubled in 30 years, increasing the demand for property and providing a rapidly expanding labour force.
One substantial hindrance to both the industry and the economy as a whole is that Indonesia's physical infrastructure is substandard. The extent of future growth depends very much on the government's ability to push through bureaucratic reforms that will allow much-needed infrastructure investment, and the recent approval of the land acquisition bill is an important step in the right direction As such there is considerable optimism in the Indonesian commercial property market. The last few years have seen impressive growth in the Indonesian real estate sector. Rents were hardly touched by the global financial crisis and have, in fact, generally increased over the past few years. Our latest data collection revealed - in line with global conditions in 2011 - reflects a more volatile year with regards to rents and yields, however the result on the year-on-year growth trend has been somewhat negligible as rents continue to soar across the majority of cities and commercial real estate sub-sectors. The strongest performance in top line growth data was viewed in the industrial sector over 2011, and we would highlight retail space as likely to outperform over the coming quarters while office space will face comparatively more risks than its counterparts struggling to maintain the historic growth pace.
Key Opportunities
- Government spending on infrastructure is expected to increase.
- We anticipate that commercial rents will generally continue to rise, in line with strong macro economic performance and increasing interest in the country as an investment destination.
- The recent approval of the land acquisition bill is expected to have major implications on the country's transport and infrastructure industry's which presents upside risks to the real estate sector.
Key Risks
- The government's version of Indonesia-registered REITs has a prohibitive tax burden.
- The advent of political instability would threaten the country's lower-risk image.