Optimism After a Challenging Time
    Category: Column By : Todd Lauchlan Read : 802 Date : Friday, February 13, 2015 - 20:04:07

    Moving into 2015, let’s take a look at the past 12 months, and where we go from here. This time last year, I forecast that 2014 would be more challenging, thanks to a cyclical slowdown and the “wait and see” attitude over the elections. And that proved to be the case.

    To top it off, the U.S. Federal Reserve’s decision to reduce quantitative easing hit emerging markets hard, sending the rupiah to its lowest levels against the dollar since the Asian financial crisis. So it has been a relatively tough 12 months for the economy and real estate. I’m more optimistic as we move into 2015—not least because, over my holiday break, my inbox was clogged by inquiries from overseas investors. That’s a major change from the beginning of 2014.

    The election of Joko “Jokowi” Widodo has removed much political uncertainty. Jokowi has already slashed the subsidy on fuel. At the start of the year, the diesel subsidy was cut to Rp 1,000 per liter, with the gasoline subsidy scrapped altogether, raising retail prices by 30%.

    The move frees up government resources for investment in infrastructure, as well as on needed investments. Jokowi’s timing in the subsidy cut was impeccable: the 60-plus percent drop in oil prices mostly offset any extra cost last year, cushioning the hit to wallets.

    The budget for this year priced in a subsidy of Rp 290 trillion, or $25 billion. Jokowi’s subsidy cut shaves $7.5 billion off that figure. But lower oil prices combined with higher prices at the pump can slash Rp 130 trillion off the budget this year, according to Société Générale. That’s $11 billion—roughly half the amount originally set aside.

    Expect to see that money put into different forms of state spending. In terms of real estate, improved infrastructure opens up new markets and encourages the shift from an export-driven to a domestic economy, positive for real estate. So cutting the subsidy should be very positive for investment in the long run. I foresee the following in various sectors:

    The emerging middle class is shifting to nuclear families, replacing traditional multigenerational structures. So rents and prices should rise by around 10%. Jokowi also suggested foreigners could buy apartments above Rp 5 billion ($400,000). This change would lure global investment, and we have already seen cross-border Asian developers such as Keppel, CapitaLand and Hongkong Land invest.

    I am most bullish on warehouse and industrial property, and anticipate an excellent year, thanks to increased international investment, coming from Europe, the U.S. and ASEAN. Prices and values should rise by 10% at least. My industrial team is reporting a 60% increase in inquiries from 2014.

    Office market
    This will be a solid year for office space. The new supply will keep price or rent increases to low or mid-single digits but demand will rise significantly from 2014 as domestic and international companies expand.
    The rising consumer sector and the ongoing restrictions on new mall development mean retail mall owners are set for a good year. These trends should produce gains of around 7% in capital values and rents during the year.

    Consumer confidence
    Indonesia needs to put everything in place to allow the world’s fourth-most-populous nation to grow. After the elections, there’s confidence among “man-in-the-street” consumers and large corporate investors alike.