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Growth in industrial property sales has been lagging in
Indonesia. Are things likely to stay that way going forward or is there
hope for improvement?
The Indonesian property market can be divided into a number of
subsectors, i.e., the office, retail, landed residential, condominium,
rental apartment, and industrial estate subsectors.
According to the latest report by Procon Indah, Jakarta experienced 15
percent growth in retail property and condominium supply, while office
supply is predicted to quadruple in 2007.
Meanwhile, sales in the industrial estate subsector (despite the
growth) are still at the bottom of the property cycle, lagging behind
the rental apartment and even office subsectors.
For those wishing to invest in property, the question has long been,
what's down the road for industrial property?
Compared to Thailand, industrial property prices in Indonesia are low,
averaging US$42 per square meter versus approximately $74 per square
meter in Thailand's industrial heartland, which is not too far from
Bangkok.
How big is the potential for catching up?
A look at other figures suggests that the industrial estate subsector
is not one of the brightest stars.
A Bank Indonesia survey shows the rate of sale for industrial sites in
Jakarta and other cities, such as Depok, Bogor, Tangerang and Bekasi,
only reached 72 percent in 2006, up less than two percent from the
previous year.
Meanwhile, the apartment and retail property subsectors recorded rises
of approximately five and six percent, respectively.
What factors actually help to boost demand for industrials? The fact is
that if a country has a prospective investment climate, investors will
be interested in investing their capital, leading to increased FDI,
and, eventually, demand for industrial property.
However, comparing industrial property sales with FDI does not reveal
any significant correlation. For certain industrial property companies
in Cikarang, Bekasi (West Java), industrial property sales are quite
volatile and not significantly in line with FDI levels.
Therefore, FDI may not be the most important factor in determining
demand for industrial sites. Demand from SMEs has rebounded a long way
since the aftermath of the 1997 economic crisis, and they are now
contributing significantly to industrial property sales, cushioning the
effects of drops in FDI levels.
Another determinant is the state of the infrastructure in the area, the
closeness of the area to air and seaports, and the ease of transporting
goods to warehouses, markets and stores.
Infrastructure, such as water treatment plants, electricity generators
and roads, is an essential factor for any industrial area. The
production process not only needs power, but also waste treatment
facilities.
Hence, unless infrastructure is available in an area, industry will not
grow. The closer a production center is to a transportation port, the
more efficient and less time-consuming it will be for a company to
convey export goods and import raw materials.
Industrial areas outside Jakarta are located an average of 60 to 75
kilometers from Soekarno-Hatta Airport and Tanjung Priok Port. If an
industrial area is closer to these ports, the demand for sites in the
area will increase and eventually prices will also rise.
An uninterrupted flow of goods is also needed to support the
distribution process. This involves how the goods are transported and
how secure the distribution lines are. The availability of
transportation does not only refer to road transportation -- especially
in the light of the crippling floods that hit Greater Jakarta in
February. New railway lines and even new seaports would be a great boon
for industry.
In this regard, the discrepancy between industrial property prices in
Indonesia and Thailand may in part be due to the fact that Thailand's
high-tech industrial areas are located in strategic areas with modern
infrastructure. Meanwhile, Indonesia's industrial areas are mostly
located outside of the capital and have only rudimentary infrastructure.
Hence, to cut things short, the demand for industrial property in
Indonesia depends greatly on the investment climate (though not
necessarily FDI), the supporting infrastructure and the security of
tenants.
If one is convinced that substantial improvements will be forthcoming,
then the industrial property outlook may seem appetizing. If not, it
may be wiser to stick with the other subsectors.
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