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NEWS UPDATES 2 July 2010

Indonesia real estate safe

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Jakarta is one of the most important financial centers and trade hubs in the world. Many multinational companies have located their regional headquarters in Jakarta. Grade A office building rentals have quadrupled to US$80 per square meter per month and occupancy has risen to 95 percent. Luxury condominium prices are tripling to $9,000 per square meter and CBD land prices are rising five-fold to $15,000 per square meter.

The above scenario may seem like a far-fetched picture, but savvy investors have to envision different possibilities of how the future may unfold and then invest accordingly, as reported by the Jakarta Post.

The best property investment location has constantly changed starting from Cordoba in the 10th century to Constantinople, Beijing, Batavia, Venice and New York, up to Hong Kong in the 20th century. History illustrates that it is critical to find the correct investment location at the right time with the key underlying notion being that it is undervalued and faces an uncertain but potentially prosperous future.

The Indonesian real estate market is relatively cheap (see table) with Jakarta office rentals still below pre-1998 crisis levels and luxury condominium prices significantly below neighboring countries.

The Indonesian real estate market offers exceptionally good risk-reward ratios after a lengthy bottoming out process beginning in 1997, which has shaken out speculators and weak hands, leaving long-term investors. This corrective process tends to overshoot on the downside and create an undervalued scenario, providing a very low risk entry point. However, cheap in itself does not necessarily make great investment. Other factors must be present to make it attractive.

Indonesia is presently experiencing an interesting confluence of key macro and micro trends making its real estate market prospects very exciting.

Recent developments in South European countries, most notably Greece, and the ever worsening United States debt, which now stands at 89 percent of GDP, may to lead to a shift in perception of low risk investment. Real estate investments in Indonesia with its appreciating currency and high economic growth rates may soon be deemed to be a safe asset class.

The recent removal of the reminbi-US dollar peg will aid the growth of China and increase its influence on commodity producing countries such as Indonesia, Malaysia and Australia. A stronger reminbi will not only promote imports of commodities from Indonesia and but also export tourists from China. Bali has seen more than a 300 percent growth of mainland Chinese tourists from 61,000 in 2007 to nearly 200,000 in 2009. The recent proliferation of Chinese restaurants and birds nest retail outlets in Bali highlights the growing importance of these tourists.

Indonesia with its large natural resources will benefit tremendously from China and India’s strong growth and large population as there will be a high demand for energy and agricultural commodities especially as lifestyle patterns trend upward.

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