Indonesia property market survey 2012

Log 20120314 11:11am

Yesterday after I have posted my fund manager’s friend writing in the blog about the Indonesian market, the traffics was low, it’s either too technical, too dried or it’s not Singapore! Anyway, from my observation, my blog entry of property returns have been garnering quite a huge traffic and I guess everyone is concern about what they are getting themselves in since property is always one’s most expensive investment in one’s lifetime.

Yesterday I happened to meet up with my headhunter friend who helps me with my recent placement. According to her the consultancy market is terrible in Hong Kong and even those establish International firm who have a branch office here in Singapore have defaulted on staff’s salary for 4 months! Gosh! Then I pushed further to get more info about expats market in Singapore, the reply was the package is as good as a local staffer with no more allowance for accommodation and other luxuries they used to be offered. What does this tell you? They will need to pay their accommodation from their own pocket and with that in mind, do u think u will spent S$4,000 for an HDB 4-room in Tiong Bahru or spent close to S$3,000 for ‘monkey’ units in Orchard? This is to say that the rental income will dwindle and potential cash flow from rental will diminish over time.

The trend have been visible with more and more expats more outwards like Kovan, Serangoon and last night I even met a few doing their groceries in Sengkang! That’s very very far for them! We all know the rental is not yet as high as city centre and the amenities are almost the same albeit the distance to city centre where they work. Others like those staying in the neighborhood near my humble rented en-bloc unit will just drive their partners in posh cars and drop them at the nearest MRT. So, without a good pay package, the spending will be reduced from transportation and accommodation. Would you still pay S$3,000 psf Far East SOHO unit in Tanjong Pagar for investment?

Hi everyone, just got this from my fund manager friend in Indonesia who have hosted me there during the weekend (9/3/2012-12/3/2012). The following email is his periodical report to his clientele. I will follow with my views of the Indonesian market once I'm done with some factual research.

TRAM Visit Notes 2012 03 12: Jabodetabek Property Tour

I hosted a Singaporean architect over the weekend and we visited a spectrum of developments in Jakarta over the weekend. There are a few interesting findings.

Singapore land prices

I was shocked to find out that Singapore Housing Development Board (HDB, Singapore public housing board) uses SGD300/sqft (Rp25mn/sqm) for HDB development for outskirts, and SGD500/sqft (Rp40mn/sqm) for developments higher end “CBD-rim” neighborhoods

(1) That city center to city outskirt price difference is only 40% premium. I am aware that price differential in Indonesia is about 20%-30% between main artery road and sub artery road land within the same neighborhood! I believe this is largely due to the good infrastructure existing in the whole of Singapore. Hence there is no need for an extreme differential in price as distance from CBD grows. In Indonesia, one can take as much as 10 - 15 minutes just to drive out of a neighborhood to the main artery road during peak hours.

(2) That the nominal figures HDB is assuming for land in Singapore is not that high, somewhere between Rp25mn to Rp40mn per sqm, versus income in Singapore where GDP is almost 15x that of Indonesia. Using that ratio, then the median Indonesian should be living in land area where its priced between Rp1.5mn to Rp3mn per sqm.

On this matrix, then I figured Indonesians are living on land where price is much higher in income terms than those inSingapore. Rp1.5mn to Rp3mn land are those located beyond cibubur (cimanggis, sentul) on the south, beyond lippo karawachi (tanggerang, pasar kemis area) in the west and beyond Bekasi (cikarang, karawang area) in the east.

However if we use DKI JKT GDP/capita/yr of USD11000 to calculate this, then the same matrix will produce effective land price of Rp5mn to Ro8mn per sqm. On this matrix, then the current property price developments make sense, where Serpong, Bekasi and Cibubur are re-rating towards these prices.

(3) If HDB is assuming such prices, then either Singaporean private housing is expensive because of the building portion, or that HDB houses are heavily subsidized. As such, the rule of thumb for HDB pricing in Singapore is that land is fully subsidized by the government and that they are typically 20%-30% of the project development cost. If this is the case, then Indonesia home can still continue to catch up in terms of price, not because of land price components, but rather building design and quality. This definitely need more work as it may include more labour and transport costs given SG’s vs. Indonesia geography.

(4) These prices are applicable for public housing. I will need to check if its applicable for private housing.

(5) The other thought is that if land prices are assumed to be SGD300 – SGD500 / sqft and that HDBs are sold at SGD 500 – SGD 700 / sqft right now, then strata title building prices are sold at higher price than land in Singapore. The writer is puzzled by the fact because on a theoretical basis, land prices should be higher than strata title building because land cannot be created while building can. Land is a limited resource while building is not. This phenomenon is also developing in JKT CBD, where grade A high end developments are selling at Rp40mn/sqm where land prices in the same neighborhood can sell at Rp20-25mn/sqm.

Well these are thoughts and need to be further researched upon.

Conclusion:

I believe the land price vs. income matrix maybe a good model to find a undervalued land prices vs. the income of the area. As my hunch is that mismatch arrived from this matrix is more likely to be found in Jabodetabek outskirts rather than Jkt CBD.

As such plays for the story is ASRI (Pasar Kemis), BKSL (Sentul & Jonggol) , ELTY(Sentul, Bogor, Lido).

from handi huta jaya, trimegah asset management