Tuesday, November 24, 2009

Investment in high-rise residences remains promising

Tuesday, November 24, 2009 3:35
The Jakarta Post
Tikam Sujanani , Contributor , Jakarta | Tue, 10/21/2008 11:28 AM | Supplement

Traffic congestion is a nightmare for residents of Jakarta. With productive time being wasted on the road, an inability to spend time with the family, increasing fuel prices and a lack of comfortable public transportation, people living in the suburbs of Jakarta are facing difficulties.

Living in an apartment close to your workplace, school or shopping center is the dream of most Jakartans. That's why the construction of apartment buildings has been favorably welcomed by the government, major developers and the broad community.

Indeed, living in an apartment has recently become a lifestyle phenomenon. Facts show that the construction of apartments is gaining intensity and frequency from year to year.

Most of the projects launched in the second quarter of this year were government-subsidized apartments. As sales prices are set by the government, this type of residence is not immediately affected by increases in the prices of building materials and fuel. They continued to enjoy high take-up due to their attractive prices. Challenges, therefore, emerged for developers to deliver these projects with many constraints.

A number of apartments within mixed-use developments continued to be launched, following our outlook in the previous periods. Exclusive upper-segment apartments with a limited number of units were also seen entering the pre-sales market.

The majority of existing apartments were still coming from middle segment developments, which represent approximately 62.5 percent of the total existing units. Meanwhile, the proportion of upper segment developments increased significantly by 3.8 percent.

This quarter saw several newly launched apartment projects such as Ancol Mansion, Casa Grande (Kota Kasablanka), Eastonia Apartment, Kebagusan City (Tower B, C), 1@Cik Ditiro, St. Moritz Penthouse and Residences, The Stupa, Tiffany (Kemang Village), and Ambassade (Tower B).

Most of these proposed projects targeted the middle- and upper-class segment. The review quarter was also marked by the launch of more subsidized apartments such as Apartemen Cibubur Village, Sentra Timur Residence in Cakung, Kalibata Residence, Tanjung Kalibata and Menara Kebon Jeruk. These projects brought the total proposed supply as of the second quarter to 57,070 units that will gradually enter the market by the end of 2011.

Meanwhile, a number of projects were also completed during this period, mostly targeted at the middle- to upper-class. The new completed apartments are Eminence, Hampton's Park (Tower C), Marbella Kemang Residences (Tower B), Mediterania Garden Residence 2, Kempinski Private Residences, Cik Ditiro, Salemba Residences, Patria Park and Mediterania Marina Residences (Tower D).

These new deliveries brought the cumulative supply of strata-title apartments to 65,916 units, an additional 6,487 units from last quarter.

This extraordinary growth shows that investment in apartments is quite attractive. However, attention to location is necessary. Location and location: this is the convention in the property world in general.

That location is very important is evident from the fact that the rent of a number of apartments built in choice locations quite a while ago can still compete with the rental rates of newer apartments. Another reason the rent remaining competitive despite a building's age is that it is managed by an established property management company.

In general, an investor must decide whether to invest short or long term. This decision is important in determining the most suitable type of apartment to invest in. If you wish to invest short term, it is better to buy an apartment off the plan, or during the pre-sales period, because its price will rise 20 to 25 percent between the building's launch and completion of construction. In this way, as an investor, it is possible to get a capital gain when re-selling the property. The time between the pre-sales period and launch is between two and 2.5 years.

However, when planning to invest long term, the apartments can be lease out to enjoy quite a good yield. It is true that the rental rate cannot be too high. In general, the monthly rent per unit is generally no more than US$2,500 unless the unit is in a prestigious property project or is strategically located. The market share for premium class is quite limited as the tenants are usually embassy people or CEOs of multinational companies in Jakarta. However, as the average yield is 8 percent per year, leasing out an apartment is still more profitable than depositing your money in a bank, which carries interest of only 5 to 6 percent per annum.

However, once again, aside from location, the credibility and reputation of the property management handling the apartment block must be taken into consideration.

The recent trend is the construction of what is known as a "green properties" or property projects that have fewer impacts on the environment. As urban land is very limited, land prices are high and the environment is experiencing degradation (flooding, clean water scarcity, air pollution), the development of an integrated area of green apartments is a breakthrough in urban development. Of course, this aspect is a plus point for the apartment products concerned.

It may be said that investment in the apartment sector will remain promising for the next few years. It is you who must decide whether to invest short term or long term, as both have their pluses and minuses.

-The writer is senior manager, marketing consultancy PT Property Advisory Indonesia (Provis).

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