A Stable 2016 Portends a Solid Year for Real Estate
    Category: Column By : Todd Lauchlan Read : 547 Date : Wednesday, February 08, 2017 - 12:21:26

    Indonesia enters this year with its financial markets having posted an extremely good 2016, and benefitting from surging commodity prices. Overseas real-estate investors have been lured by the nation’s emerging middle class. What to expect from 2017? With U.S. President Donald Trump in office, Asia may be a lower priority than under Barack Obama, with his “pivot to Asia.” Then again, Trump and his administration are staunchly hawkish on China relations, meaning the U.S. may seek allies in Asia. His foreign policy pronouncements during the campaign were all over the place, and his aides warn that you can’t take seriously what he said during the campaign.

    Indonesia is likely low on Trump’s priority list. Besides China, he is eyeing Japan and Mexico, as purported thieves of jobs, regardless that Toyota is the biggest U.S. auto producer, with 136,000 employees. U.S. investment in Indonesia has been scarce. China, via the Asian Infrastructure Investment Bank, and Japan, via the ADB, has by contrast used infrastructure investment to build ties. Japan and China will undoubtedly keep competing for Asia’s affections, as regional superpowers. The real-estate market, typically a lagging indicator, should take the stock market’s lead in 2017. Higher oil prices boosted Asia’s occasional OPEC member, an on-again-off-again relationship that the country suspended (again) in November.

    President Joko “Jokowi” Widodo has initiated a relatively successful tax amnesty to lure back overseas and undeclared domestic assets. His aim is to spend heavily on much-needed infrastructure. As one of his first steps on taking office, he abolished a decades-long gasoline subsidy, without much backlash, which has also freed up cash in the budget.

    Such moves make hay with the emerging middle class. Jobs are aplenty, relatively speaking. Residential has had a tough time, but should recover over the next 12 months—albeit slowly. The immediate gains will feed greater consumer spending and increased demand for retail space. The manufacturing sector will require more warehouse and industrial space. The office sector is oversupplied, and rents and capital values will soften.

    Overseas real-estate investors pumped at least $2.8 billion into Indonesia last year, according to Reuters, including a $1 billion tower backed by the China Communications Construction group. Mitsubishi, Tokyu Land, Hongkong Land and Sime Darby also have deals under way in Jakarta and nearby. With 200,000 moving to Jakarta each year and a young, middle-income population of 55 million families, there is strong demand from owner/occupiers, the underpinning of a stable market.

    Indonesia has made it easier to own a home. Bank Indonesia cut interest rates three times, a total of 150 basis points, to 4.75%, in 2016, and lowered minimum down payments. Property sales will grow at least 15% this year, the first annual growth since 2013, according to Indonesia Property Watch. Business is good, and easier. The country rose 15 places in the World Bank’s “Doing Business” index, putting it among the top-10 gainers, although it is ranked 91 worldwide. Business-friendly moves include abolishing minimum capital requirements for small- and midsize businesses, and introducing online tax filings.