Indonesia Real Estate Industry Update Quarter 4 2011

The Indonesia Real Estate report examines the Commercial Office, Retail and Industrial segments in the
context of a consistently strong performing market which, in spite of efforts to improve the business
environment and continued investor interest, is slowing.
With a focus on the three principal cities of Jakarta, Bandung and Bali, the report covers the rental market
performance in terms of rates and yields over the past 18 months and examines how best to maximise
returns in the commercial real estate market, while minimising investment risk and exploring the impact
of international headwinds on a market which has historically proven itself to be resilient. The key
potential growth areas driven by increasing activity on the part of international investors, favourable
fundamentals and the potential of the archipelago’s consumption driven economy are also explored
alongside corporate growth strategies looking to both domestic and international channels for growth.
As such there is considerable optimism in the Indonesian commercial property market. The last few years
have seen impressive growth in the Indonesian real estate sector. Rents were hardly touched by the global
financial crisis and have, in fact, generally increased over the past few years. Our latest data collection in
July 2012 revealed that rents continue to soar across the majority of cities and commercial real estate subsectors.
One substantial hindrance to both the industry and the economy as a whole is that Indonesia's
physical infrastructure is substandard. The extent of future growth depends very much on the
government’s ability to push through bureaucratic reforms that will allow much-needed infrastructure
investment, and the recent approval of the land acquisition bill is an important step in the right direction

Key Points
- While Indonesia will likely outperform its regional peers in 2012, growth will slow from 2011's
6.5% rate as the economy faces both external headwinds and domestic constraints. We have
downgraded our headline GDP growth forecast for 2012 from 5.8% to 5.4% as a result of
downward revisions to our gross fixed capital growth (8.5% to 7.5%) and private consumption
(5.3% to 4.5%) forecasts, as we expect these sectors to be hampered by a deteriorating
investment climate.
- We are maintaining our 6.9% growth forecast for Indonesia's construction sector in 2012.
Although construction activity in the first quarter of this year was a strong 7.8% year-on-year (yo-
y), the reversal in conducive monetary conditions for construction activity and the poor
outlook for the global economy are expected to dampen construction activity over the rest of
2012. In addition, we see a real risk that the construction sector fails to realise its long-term
growth potential, as there is a growing lack of political will to carry out the regulatory reforms
required to unlock private sector investment demand. To capture this risk, we have revised down
construction real growth to 7.7% (from 8.2% previously) per annum between 2012 and 2021.
- Our latest in country interviews – conducted in July of 2012 – and covering market performance
for H112 reveal the market's strength, the industrial sector in particular has benefitted
spectacularly by way of comparative annual performance.