Indonesia Real Estate Report Q4 2009

Signs are emerging that Indonesia is recovering from the global financial crisis, with some earlierforecasts regarding the construction industry, such as Holcim's, now looking outdated and conservative.It would appear that action by the Indonesian central bank - which reduced its benchmark interest rate inearly June for a seventh straight month by 25 basis points to 7% to help spur economic growth - as wellas government infrastructure and stimulus spending programmes are beginning to have an effect.

In September, Indonesia's rupiah climbed to its highest level against the dollar in 11 months, and thegovernment's benchmark 10-year notes gained after Moody's Investors Service raised the nation'sforeign- and local-currency sovereign debt ratings to Ba2, two steps below investment grade, from Ba3.

Indonesia's economy has been relatively resilient to the global contraction and is better positioned to facemedium-term global challenges than many of its peers with a similar credit rating, Moody's said.Nevertheless, a tight credit situation has stalled many property projects at the initial stages. Delayedprojects, a result of the difficulty in acquiring financing due to the economic climate, will help put a floorunder occupancy and rental rates for Jakarta offices, according to commercial real estate agent ColliersInternational.

There has been a slowdown in office leasing activities, although rental values appear to have stabilisedafter growing in Q109 and Q209. While not as severely affected by the economic recession as other SouthEast Asian economies, the business climate remains challenging, although some developers andconstruction companies - as well as indicators such as cement usage - suggest the situation is improvingsteadily.

Average occupancy rates of Grade A office space remain high, and average rental values are aroundIDR168,000 (US$15) per m2/month. Although uncertainty has diminished, only cautious optimism isjustified for the remainder of 2009.

The residential market has been affected by slow take-up, although with the elections out of the way,there is growing confidence, particularly in the middle to upper end of the market, as buyers return.

Secondary market condominiums, particularly for two-bedroom units, remain sluggish, however.

The outlook for the retail segment is less bright. Relatively high interest rates and difficulties in securingfinancing in the current climate are expected to lower prices.

While a change in foreign property ownership laws would be likely to boost the sector, there are fewsigns that the government has the political will or ability to do this.