JAKARTA: Many Indonesians are hoping to sell residential property for a substantial profit, helping to make real-estate development and building construction the hottest sector of a rapidly expanding economy.
Eager to exploit the boom, many of Indonesia’s business leaders and a host of would-be tycoons are leaping on the real estate bandwagon with projects to build satellite cities, housing communities, office towers, apartment blocks and condominium complexes, mainly in Jakarta but also in other major urban centers.
“The rapid increase of middle-class housing estates in and around Jakarta, and now in Surabaya, is clear proof of the emergence of a new class of consumer,” said Marc de Speville, an investment analyst at P.T. Jardine Fleming Nusantara. Surabaya is Indonesia’s second largest city after Jakarta, the capital.
According to the Indonesian Real Estate Association, the number of apartments in Jakarta aimed at middle to upper income earners will soar from 4,000 at the end of 1994 to 34,000 by the end of 1997. In the next two years alone, more than 75 apartment projects are scheduled to open to tenants.
Not surprisingly, there have been warnings of a collapse in the property market. Apartments, condominiums and office towers are considered the areas most at risk.
Some bankers worry that if the speculative property bubble bursts, it will leave a trail of bad debts and further weaken an already strained banking system.
Selling prices and rentals for residential apartments and office space, which had risen sharply over the past year, are now starting to fall because of over-supply.
A recent report from real estate agent Brooke Hillier Parker warned that developers tend to overestimate the buying power of their target market in the emerging Indonesian middle class, which is put at 15 million and growing fast by some consultants for local and foreign companies eager to cash in on the largest potential consumer market in East Asia outside China.
“Too much domestic lending is going into real estate development,” said a Western banker, “and too little into productive investment facilities that produce goods for exports” to help service Indonesia’s large foreign debt and pay for imports.
Evidently aware of the danger, the central bank recently warned commercial and state banks to restrain their property lending.
Soedrajat Djiwandono, the central bank governor, said that lending growth had been highest in the property sector, where credits had grown 33 percent in the first eight months of 1994 to 42.5 trillion rupiah ($19.3 billion).
The government also imposed new regulations on building developers to try to tighten controls on pre-selling residential developments before construction has started.
While some property developments are poorly planned and designed to cash in on speculative greed and hopes of being able to sell residential property to foreigners if ownership laws are liberalized as expected, other projects are soundly based and meet a real need for better middle-class housing.
Nonetheless, access to land and housing is a potentially explosive social and political issue in Indonesia, especially on the main island of Java, where Jakarta and Surabaya are located.
With 826 people per square kilometer, Java is the most densely populated large island on earth.
Indonesia has a population of around 185 million and its economy has expanded by an average of around 6.7 percent annually over the past five years after adjustment for inflation.
As the country continues to industrialize, the proportion of the population living in urban areas is expected to reach 50 percent by 2010, up from 31 percent in 1990.
The price of land in Jakarta has risen steeply in the past few years as developers seek places for new roads, residential buildings and industrial sites. by MICHAEL RICHARDSON is editor for Asia of the International Herald Tribune.
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