As with other economies around the world affected by the global crisis, growth slowed in Indonesia in 2012. However, the property market is bucking the national trend, with large real estate developers planning a wave of new construction and mid-sized companies launching office and apartment projects.
Statistics Indonesia said in January that growth in the final quarter of 2012 was 6.11%, compared with a revised 6.16% for the third quarter. Analysts have cited declining exports, a weakening rupiah and a growing current account deficit as reasons for the decline.
That trend, however, contrasts with confidence in the real estate market, underlined by a report released by Indo Premier Securities (IPS), a local securities firm, in December 2012.
Property will benefit from strong domestic spending and low inflation this year
the IPS said in its “Equity Strategy” report, noting the performance of two mid-sized companies, Metropolitan Land and Surya Semesta Internusa, and raising expectations over the former’s planned 4135-sq-metre office and apartment project, the M Gold Tower.
“The launching of M Gold Tower, located beside Grand Metropolitan mall in Bekasi, according to the management, was very successful, due to a high take-up rate,” the IPS said in its report.
In further evidence of bullish sentiment in the property market, on January 11, Lippo Karawaci (LPKR), the largest property development firm in the archipelago, announced that it had successfully issued $130m, eight-year senior notes to the international market.
This issue is a re-opening of LPKR’s existing 2020 senior notes, increasing the overall value to $403m. The issue was priced at $104.40, resulting in a yield of 5.2%, noted Singapore-based Kim Eng Securities (KES). “Moreover, the response from investors was overwhelming, with an order book of $845m, or 6.5x oversubscribed,” said KES.
LPKR has plans to build more shopping malls and hospitals in cities beyond Jakarta to capitalise on the increasing wealth of the expanding middle class, revealing at the end of 2012 that it will increase capital expenditure by up to 50% in 2013.
According to Ketut Budi Wijaya, the president-director of LPKR, as much as $200m of the 2013 capital exchange will be spent on its hospital business, as well as $150m for its mall operations, while the rest will be used to finance residential property projects.
Meanwhile, in their “Emerging Trends in Real Estate – Asia Pacific 2013” report also released in December, PricewaterhouseCoopers (PwC) and the US-based Urban Land Institute said that Jakarta would be Asia’s top real estate market in 2013, ahead of cities such as Hong Kong, Singapore and Sydney.
Condominium property for foreigners ?
Indonesia is still mulling a regulation, first revealed in March 2012, that would allow foreigners to own property, though it would be restricted to condominiums. The regulation would provide foreigners with the right to apply for the purchase of a Building Ownership Certificate, which is completely detached from land rights. At the moment, foreigners may lease property for 25 years, which can be extended for further periods of 25 and 20 years, bringing the total to 70 years.
“Foreign direct investment is increasing at a much higher rate – 39% in the first half of  … Driven by increased demand from foreigners and locals alike, office rents shot up 29% year-on-year in the third quarter, according to [property services firm] DTZ,” wrote PwC in its report.
Expansion in 2011 saw a 78% increase in office take-up in the Jakarta Central Business District (CBD) to 420,000 sq metres, while demand from areas outside the CBD increased by 154% to 143,000 sq metres. It is estimated that about 45,000 foreign workers live in high-end accommodation near the capital’s business districts.
However, the survey also found risks in the market, citing credit difficulties, and tricky legal scenarios involving domestic land partnerships. The World Bank noted that “real estate and property pressures will need to be watched going forward” in an October 2012 quarterly.
To rein in the risk, in March 2012 Bank Indonesia, the central bank, introduced limits on the size of housing loans, capping mortgages at 70% of the value of the home, though properties measuring less than 70 sq metres are not subject to the regulation.
While such measures will temporarily cool the market for domestic housing purchases, as foreign investment takes aim at the burgeoning property scene, Jakarta will need to devise tighter regulation mechanisms for the money set to flow in.
Note: This article was written by Oxford Business Group, the views and opinions expressed in this article are those of the authors and do not necessarily state or reflect the views of Thailand Business News
The Indonesia-Singapore Bilateral Investment Treaty Comes into Effect
Through the upgraded DTAA, the tax rate on branch profits was reduced from 15 to 10 percent, and the tax rate on royalties for copyrighted works of literature, arts, and film, and eight percent for the use of industrial, scientific, or commercial equipment was lowered from 15 to 10 percent.
Will South-east Asia’s tech giants turn to SPACs to boost post-pandemic growth?
– SPACs have become a hot-button topic in global finance
– The vehicle is widely used to help tech start-ups go public
– Both Singapore’s and Indonesia’s exchanges are set to allow SPACs
– Several South-east Asian tech unicorns may use SPACs to list publicly
South-east Asia is seeing a wave of interest in special purpose acquisition companies, or SPACs, with various major tech players considering them as a means to fast-track public listings. In parallel to this, several exchanges in the region are moving to allow SPAC listings, with a view to boosting post-coronavirus growth.
SPACs are shell companies set up by investors and then listed on a given stock exchange. Their sole function is to acquire a private company, enabling it to go public without having to go through a traditional initial public offering (IPO).
A SPAC does nothing beyond its essential function – it neither produces nor sells anything, and a SPAC’s only assets are the funds raised from its own IPO.
Crucially, people who buy into a SPAC do not know what its eventual acquisition target or targets will be. This is why SPACs are often referred to as “blank cheque companies”: they give the founders a free rein to back their choice of private company. A key feature of SPACs is that they are often headed by big-name business executives or fund managers, who trade on past successes to inspire trust in investors.
While they are far from a novel phenomenon, SPACs have become a hot button topic in recent times: SPAC initial offerings quadrupled last year, with the vehicles raising a record $80bn.
Merging with a SPAC enables a company to go public and raise capital more quickly and painlessly than with a traditional IPO, circumventing some of the volatility that Covid-19 unleashed on global markets. At the same time, they function rather like venture capital, helping investors to buy into high-growth start-ups on the ground floor.
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