Transition in Indonesian Real Estate Sector Underway
The current transition in Indonesian Real Estate sector is not being driven by oversupply. Given that the rental market is at an all-time high, the “oversupply” tag is not entirely accurate. One big issue now is how to comply with stricter government regulations in the real estate sector.
As the market has matured, capital gains no longer drive the market. Therefore, developers need to get back to the basics and market properties for what they actually offer, not simply as real estate investments. This transition in Indonesian Real Estate sector should change the way properties are marketed and sold, moving away from the pure investment play to something more akin to buying a holiday house that you can also money off of.
Buying a property should be based around actually living there or using the property some percent of the time during the year. For frequent travelers to Bali or ex-pats living in Bali, this means buying into a place for what it offers and where it is located first and foremost. The lifestyle in Bali is attractive and the culture is amazing, a couple of the reasons why Bali has consistently been ranked as the number 1 travel destination in the world.
If a property can be rented while it’s not being used, that will offset purchase and operating costs and provide a highly affordable holiday accommodation. In the long run, property will continue to appreciate (they ain’t makin more of it!), so look for good value in the market today and make a long term play for the future.
In a recent article on the state of Indonesian property industry, Kontan suggested property sales are likely to remain sluggish through to the end of 2018 largely because unfavorable macro-economic conditions and a general over supply have made investors cautious. So the conclusion is that a transition in Indonesian Real Estate sector is underway.
Terje Nilsen, Principal of Harcourts Seven Stones sees things differently. He told WILLIAMS MEDIA “the slowdown in general is more related to a mind shift and fear of tax exposure than macro-economics. There are a lot of properties for sale, but a lot of those have unrealistic price expectations, which in turns creates the image that it’s a buyers market. But many would argue there is no real oversupply. The long-term rental market, for example, is at an all time high and that doesn’t point to there being an oversupply. The main challenge for developers is to change their business models and structures to comply with stricter government regulations.”
Andy K Natanael, Founder of PROJECT and PROVIZ told Kontan this apparent over supply began around four years ago when a lot of developers entered the market. He thinks it unlikely prices will rise and in many cases, prices for secondary homes will tend to decrease. “There are so many discounts on the market today and secondary prices have dropped. Buy the property not when it’s booming but when it’s sluggish to get cheap.” Then any potential increase is likely to be significant when the market improves. On this point Nilsen agrees. “Invest now and hang in there for the long term gains,” he said.
Natanel argues capital gain investments no longer drive the market. Instead, he believes developers should focus on marketing the property’s function instead because these days, selling property has to be based around actually living there. He said this strategy applies to ultra-expensive property as well as super cheap. “If the goal is to invest, the developer must give data to consumers on where the investment potential is,” he said. And many times they just cannot do this accurately or credibly.
Easier access to credit and badly thought through projects have created these reactions argues Nilsen. “In Bali, for example you have Condotel units for sale with an ROI that just doesn’t make sense, but people still bought them. In Jakarta a similar thing happened with apartments and units built and sold outside of hot spots and commercial areas thinking they would be easy to rent, but they’re not. In both cases as an investor you need to do your homework, and trust the demand for good projects is there and will continue to go up.”
The Ciputra Group (CTRA), one of Indonesia’s largest property developers, also acknowledges a slow down in property sales according to Kontan. “Sales are very heavy this year,” said Tulus Santoso, Director of CTRA recently. CTRA now sees the greatest potential in the lower middle class market and are focusing on increasing supply there. “We are currently lacking small projects, so we want to encourage projects in this sector,” Tulus said in a marketing strategy that also points to livability rather than capital gains.
Global Business Guide Indonesia, are optimistic. In a recent article on Indonesia’s Residential Property Sector, they say overall, investment opportunities in the residential property sector are still promising given the country’s housing backlog of 11.4 million units and its huge youthful population but the government must create a conducive business and economic climate through tax and fiscal reforms. This results in a transition in Indonesian Real Estate sector being a realistic perspective and getting back to the fundamentals of why to buy and sell a property is essential to every developer.
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