Harun Hajadi, Managing Director, Ciputra; and Ervan Adi Nugroho, President-Director, Paramount Enterprise: Interview

Interview: Harun Hajadi, Ervan Adi Nugroho

Which of Indonesia’s real estate subsectors will underpin growth in 2015 and 2016?

HARUN HAJADI: There are still many big cities in Indonesia where residential property development is lacking. Planning and implementing projects in these areas will help drive sector growth moving forward. At the same time, as the new government looks to promote and develop local industries, there will be great potential and opportunity in the industrial estate sector.

There are several things the government should do for investment in industrial estates to grow faster. Increasing the availability of electricity, transport and skilled labour should be top priorities. North Sumatra, for example, has been able to capitalise on its industrial growth prospects mainly due to the availability of a good labour force. More should be done to ensure that all regions benefit from similar industrial growth patterns with increased availability of skilled labour.

ERVAN ADI NUGROHO: Growth in Indonesia’s real estate will mainly be driven by landed houses and by the apartment and condominium subsectors. Indonesia’s housing shortage is still about 15m units, significantly above the annual supply of only 600,000-800,000 units. The demand for greater residential supply, especially landed houses, is still quite high, and this can be met with the help of the segment’s appeal as a lucrative investment area. The apartment and condominium segments also remain promising as a result of competitive pricing, which has spurred growing demand.

Another factor contributing to the growing property market in the capital city is the increasing number of expatriate workers entering the country, which is boosting demand for apartments and condominiums. Other subsectors that are contributing to real estate growth are mixed-use and integrated developments, industrial estates, warehouses and logistics centres. Last but not least, middle income population’s big number and big potential growth. 

What can be done to simplify and expedite the land acquisition process? How are these changes affecting the sector’s overall development?

NUGROHO: To simplify and expedite the land acquisition process, the National Land Agency needs to streamline the process of determining land ownership status (private or public) by setting clear, standard operating procedures and extending good service from application to legalisation. The public and private sectors also need to work together to speed up the process by reforming the bureaucracy and land enforcement and by improving coordination between state agencies and developers. Strict implementation of urban planning also needs to be put in place, and firmer regulations to deter speculative practice should be considered. Lastly, regulations on land consolidation need to be implemented. These initiatives will benefit private and foreign investors and speed up overall development.

HAJADI: Unfortunately, land acquisition is still a big problem due to a lack of clear ownership regulations. Land in Indonesia is basically owned by the people; the opposite is the case in China, for example, where the land is owned by the government. As a result, before starting any kind of development, you need to buy directly from the people. This has somewhat limited the development of construction projects, not only in real estate but also in energy and transport infrastructure. To help speed up these projects, the government has implemented the new land law, which essentially gives them the right to use the land for public infrastructure projects. We hope this will be a catalyst for greater development in the construction sector.

What efforts are being made in terms of sector transparency to attract more investment?

HAJADI: At the moment, there is definitely a change happening within public administration. There are new leaders who consider transparency a necessity that needs to be promoted and encouraged. Transparency and discarding political rhetoric will be vital in our effort to attract more investment.

NUGROHO: We have recently seen improvement in the sector’s transparency. Indonesia has a democratic government, and there has been a tremendous increase in media transparency and openness. Good corporate governance. We believe this is improving the public’s trust in the government and is continuously increasing investor confidence.

What impact can we expect on the local market from a loosening of restrictions on foreign ownership?

NUGROHO: Increase in foreign investment in real estate development will precipitate an appreciation of property values. It will also encourage local developers to build premium residential properties, increasing government revenues from property and luxury taxes.

Jakarta has enjoyed the highest price growth rate at 38% per annum last year, followed by Beijing at 17.5%, Dubai at 17%, and Los Angeles at 14%. As more investors are attracted to Indonesia’s property market, sales will increase more sustainability and the overall property market will be more exciting. We should also see a move towards greater building quality and higher safety standards.

HAJADI: This is still a difficult topic. Foreigners are allowed to buy property in Indonesia. The main issue lies with land titles. The current regulation, which has been in place since 1996, states that there are two types of land titles: one for Indonesians, and one for foreigners. If foreigners want to buy, then the entire building has to have the latter type. The issue is that Indonesians would not want to buy such property due to a lack of trust in this land title, and so the majority of property is under the Indonesian land title.

What is needed at the moment is a simpler ownership regulation to help balance the complexity of the local market. That said, it is critical to first determine if a possible change of regulation will have a real impact on local citizens, and whether foreign ownership will raise property values, as happened in Singapore.

How are current regulations helping increase housing affordability for low- and middle-income segments of the population? What more can be done?

HAJADI: The government is very serious about providing low-cost housing; however, private developers are not experts in this topic and it is very important to study the market to ensure proper levels of return on investment. Greater incentives for the private sector would help bring more developers into this market, thus increasing the availability of low-cost housing. For the middle-income segment, we continue to see growth in domestic demand rather than the foreign capital inflows that spurred record home prices in neighbouring Singapore and Hong Kong. Given the continuously growing middle class in Indonesia, we consider this particular segment to be quite promising.

NUGROHO: The government has issued a regulation that requires developers to build homes for the lowand middle-income classes as well as high-end homes, at a ratio of 1:2:3 – that is to say, for each high-end house built, the developer is expected to build two for the middle class and three for the lower class. The implementation of lower mortgage rates and percentage of down payments will also help increase housing affordability, especially for the low- and middle-income classes.

Furthermore, the government should try harder streamlining the process of issuing housing permits and licences. Regulators currently require too many permits, which lengthens the process and increases costs. Removing these will help towards lowering housing prices. Finally, the government needs to fully utilise the idle or dormant parts of land banks that belong to state-owned companies in order to provide more public housing.