Jakarta

Indonesia and Jakarta in particular is in the grip of a construction boom with condominiums, offices, malls and mixed-use complexes springing up all over the city and its environs. An astounding 83.3 per cent of Indonesia’s gross fixed capital formation last year was spent on buildings. At the moment, property development in Jakarta is centered around the middle end of the market, and regionally, in west Jakarta and the fringe of the CBD. Unit prices in Jakarta average US$1,552 per sqm, which compares well with other popular city locations in the region. Many overseas buyers opt for the buy-to-let option, largely due to the fact that although yields on apartments in Jakarta average an excellent 9.9 per cent, despite recent drops driven largely by apartment price increases outstripping rental rates rises.

Rental returns also compare well with other parts of Indonesia; Bali villas for example, have a gross rental return of around 4.57 per cent. However, rental income tax is also comparatively high in Indonesia. Non-Indonesians, including those who are non-resident, are subject to tax on their Indonesian-sourced income. Those with a monthly income from rental returns are generally subjected to a tax of 20 per cent and all expenses related to property rental are non-deductible. Transfers of Indonesian properties are also subject to tax. Capital gains tax is levied at a flat rate of 20 per cent of the gross sale value of the property or the assessed value for property tax purposes, whichever is higher.

Local companies owned by non-resident individuals, a popular means of buying property among non-Indonesians, are taxed on gross Indonesian-source income at a flat rate of 20 per cent. Such companies are also subject to capital gains tax at a flat rate of 20 per cent of the gross sale value of the property when they transfer units.
Condos
Apartments are a strong growth area, and during the fourth quarter 2006, cumulative apartment supply increased by 1.8 per cent to 41,772 units with a 55 per cent share, according to Colliers International.
Colliers reported that around 8,340 units from a total of 16 projects were launched during the year 2006. A large portion of these projects (81 per cent) were comprised of total units below 1,000 and 69 per cent of them were created for single residential use. The total strata title apartment supply in 2007 increase by around 55 per cent, representing the completion of around 25 apartment projects totaling 22,900 units. Thus, the total apartment supply should increase to about 78,800 units by the end of the year 2009.

While the middle-low segment projects, with an offering price of between Rp6 and Rp10 million/sqm, command the market with a 55 per cent portion. High-end and luxury projects (with a price of above Rp15 million/sq m) share only 9 per cent of the pie. Luxury projects are only found in the CBD area (four projects) and the South Jakarta area (two projects). In 2007, tight competition occurred in certain locations such in Kelapa Gading, Permata Hijau and the Kemang area due to a bulk of supply. In addition, some locations that are currently growing are going to become new high-rise residential areas such as Pluit, Simatupang and Kemayoran.

There is also set to be a condominium element to what will be Southeast Asia’s tallest skyscraper – Dubai-based developer Emaar Property’s Burj project. Emaar Chairman Mohamed Ali Alabbar proposed the project to Indonesia’s president Susilo Bambang Yudhoyono at a meeting earlier this year. Emaar, which is currently the biggest developer in the region, was also responsible for the still under construction 718-meter tall Burj Dubai, which on completion will be the tallest tower on the planet. The move is part of Emaar’s efforts to step up its presence in Southeast Asia; and in Indonesia in particular.

Houses and Land
Despite or perhaps because of the massive boom in construction, house prices in Jakarta have been enjoying only modest rises. Residential property prices increased by just 5.40 per cent in 2007 and actually fell by 1.24 per cent in real terms. The house price index is still in the region of 50 per cent below its 1994 peak. However, the biggest deterrent facing foreigners hoping to buy land or houses is that while they can legally own condominiums or strata-title residential property (although no foreigner has actually received a strata title certificate of ownership since 1996), they are not allowed to own land. That said, in practical terms, foreigners can often receive rolling lease contracts which frequently come with an assurance that should the legal situation change they will become titled.

Renovating
The vast majority of the construction work currently ongoing in Jakarta is based around new development, and renovation has very much taken a back seat. It is a particularly unattractive option for foreigners given the taxes applicable on resales, and the fact that foreign ownership is not permitted.
The brave few who do decide to renovate a unit should remember that Jakarta is at present the third most polluted city in the world and with about 50 per cent of the houses missing usual ventilation, re-builds on older houses will involve a substantial outlay to bring them up to standard.