I recently transferred from our Hong Kong office to Jakarta amidst widespread pessimism in the media on the Indonesian economy. Much of a substantial infrastructure budget remains largely unspent and talk of GDP growth of 7% now seems like the distant past; this year the Indonesian economy looks set to expand at its slowest pace since the global financial crisis. The Indonesian rupiah (IDR) continues to depreciate against the US dollar (USD), commodity prices have slumped and uncertainty in the global economy persists. So is it all doom and gloom in the Indonesian property market? Despite obvious headwinds, the short answer is no.

• Make no mistake about it, rents in the Premium and Grade A office markets have peaked. The factors mentioned above are expected to be accentuated by a packed supply schedule and with double digit vacancy rates thrown into the mix, rents are likely to come down over the next couple of years. However, a pick-up in GDP growth, an expanding service sector and recovering oil prices are likely to fuel medium to long-term demand and we expect rental growth to rebound towards the back-end of the forecast horizon.

• A moratorium on stand-alone retail development has been in place for a number of years in Jakarta’s CBD. As such, the supply schedule is thin and vacancy rates are set to remain in low single digits for the foreseeable future. A huge, growing urban population and rising middle class are likely to mean sustained consumer demand and we expect it to be business as usual in Jakarta’s Prime retail market over the coming years with slow but steady rental growth. We also expect continued interest in the retail market in Jakarta’s outlying areas and beyond, which are unaffected by the moratorium.

• The condominium market had come to something of a standstill in recent quarters on the back of uncertainty surrounding taxes (as discussed in my last blog). Super luxury-tax regulations have now been passed and no changes to luxury taxes are expected in the short-term. Whilst increased taxation dampened sentiment somewhat at the top-end of the market, enquiry levels for middle and middle-upper grade condos remain strong and we expect this to be reflected in sales volumes in the coming quarters.

We are continuing to receive enquiries from our international institutional investor clients and interest remains high so despite obvious challenges, we are cautiously optimistic on all property sectors in Jakarta.

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