BASAR GLOBAL INSIGHTS ON COMMERCIAL REAL ESTATE

INDONESIA CRE INVESTMENT MARKET 2018-2023

Indonesia is emerging to become one of the best investment markets for 2019-2022 the focus will be around hotels(tourism) infrastructure transportation, and logistics. Indonesia GDP is 1 trillion US dollars average income based on GDP is $12,684 with a population of 267,284,000 people. Foreign Direct Investment in Indonesia increased by 99 IDR trillion in the fourth quarter of 2018. Foreign Direct Investment(FDI) in Indonesia averaged 75.21 IDR trillion from 2010 until 2018, reaching an all time high of 112 IDR trillion in the fourth quarter of 2017. Indonesia’s annual economic growth edged up to 5.18 percent in the fourth quarter of 2018 from 5.17 percent in the previous three-month period and slightly above market consensus of 5.11 percent. The expansion was mainly driven by private consumption while both fixed investment and government spending increased at a slower pace. Most popular investment destinations for FDI in 2018 were the housing, logistics and office building sector of Indonesia (with USD $1.88 billion in transaction volume), apartments in Jakarta are now priced at around US$ 2,500 to US$2,900 per square metre (sq. m.). Rental yields on these apartments are now around 7.4% to 8.5%, and have risen over the past two years.The disadvantage of buying in Jakarta, for foreigners, is complex legalities and high transaction costs. However, changes in the law are in process which should make things much easier.

Article Index
    1. Basar Global Insights on Commercial Real Estate
    2. Global Capital Flow
    3. 2018-2023 Emerging Cities
    4. Home Bias Investing
    5. The Five Year Cre Investment Cycle for Top Global Cities 2015-2020
    6. China Cre Investment Value Shift
    7. Saudia Arabia Cre Value Investment Opportunity 2019-2026
    8. India Cre Global Investment Integration
    9. Asia Pacific Cre Investment Cycle
    10. Singapore Investment Market 2018-2022
    11. Malaysia Cre Market 2018-2023
    12. Thailand Cre Investment Market 2018 -2024
    13. Indonesia Cre Investment Market 2018-2023
    14. Western Asia Cre Investment Markets
    15. Brazil Cre Investment Market 2018-2023
    16. Africa Cre Investment Market Development 2019-2028
    17. Joint Ventures Global Investment Vehicle 2019-2023
    18. Blockchain Investment Tool 2021-2027
    19. European Cre Investment Market 2018-2023
    20. US Cre Investment Market Cycle 2016-2025
    21. The Stealth Bubble 2018-2023
    22. Global REITs and Infrastructure Investment Trends 2018-2024
    23. US Market Hedging Trends to Diversification
    24. Global Portfolio Diversification 2019-2024

The largest cross border investors in Indonesia is Singapore $2.6B followed by Japan $1.4B, many Singapore companies have their offices in China. The Indonesian government allow direct investment in Indonesia as of mid 2016 an attempt to open their growing economy to the world. We expect the hotel market in Indonesia will be strong in 2019, after a record year of over 103 million tourist in 2018. The Bali, Mandalika area is the targeted area for hotel investment and a source of value creation for 2019-2020.Bali Ubud is expecting 18,000,000 visors in 2020 visitor from Asian countries are expected to rise by 47% 428,000 in 2017 to 629,000 in 2020. East Java, Central Java, and Jakarta account for 36% of the tourist.The government decided to expand hotel development on the island of Lombokin Mandalika area.The project included the building of infrastructure including solar power plants, water treatment facilities and roads.Talking about development plans, Edwin Darmasetiawan, from Indonesia Tourism Development Corporation (ITDC) was reported saying that almost 1,500 hotel room might become operational by 2018-2019 under the Mandalika project. The hotel rooms will be provided by numerous hotels including Club Med, Pullman, Marriott by EBD Bauer and Tulip (Lee Group). For example :In the Jakarta market the Amos Cozy Hotel & Convention Hall Jakarta is an elegant hotel 4 star for sale priced at $24M with Eurasian touch and blends peacefully with modern culture. The hotel is located in the heart of South Jakarta’s affluent business and commercial district of Blok M., surrounded by popular shopping malls, entertainment centers, and restaurants, all within easy walking distance. The price is $261,000 per key with a total of 92 rooms.Below is a room in the south of Jakarta Hotel:

Also we like new class A industrial pipeline with state of the art warehousing being located along Jakarta and China’s Belt and Road routes outside of Jakarta.Indonesia’s courier and logistics service sector posted impressive revenue growth of 30% – 40% in 2016 underpinned by the rapid growth of the e-commerce sector. This is well above the logistics industry growth average of 14%-15%. Indonesia is e commerce market is moving to medium gear and showing a strong upside to global investors who can automate and provide technological efficiency to logistics which utilizes 25% percent of the country GNP. Tourism, logistic, shipping transportation and infrastructure will be the primary drivers of capital flow into Indonesia. PT Tiki Jalur Nugraha Eka Kurir (JNE), one of Indonesia’s leading courier companies, also reported an increase in sales, whereby e-commerce now accounts for 60% – 70% of its deliveries. In 2016, the company delivered 192 million packages or around 16 million packages a month. Some 30%-40% of them are inner-city and inter-city deliveries within the Greater Jakarta area and 60% are from Java to outside of Java.

President Joko Widodo has stressed the importance of infrastructure development and outlined ambitious expenditure plans to the tune of tens of billions of dollars for the construction of 3,600 km of new roads, 15 new airports, 24 new seaports, railway network expansion by 3,258 km, and the improvement of public transportation in 29 cities. This will be facilitated by the government being now able to draw on considerable financial resources from the reduction in fuel subsidies, with the Ministries of Public Works and Transportation both receiving budget increases, and the central government allocation for infrastructure up by nearly 50% to the value of 290 trillion IDR. There are also hotel investment opportunities in Indonesia with major theme parks in the plans to attract even more visitors.The Chinese are in partnership with Donald Trump they are building a theme destination with Trump hotels and Golf courses, as they play out their hands in the trade war. The 1 billion project includes Trump-branded hotels, residences and a golf course, as well as other hotel, shopping and residential developments. A subsidiary of Chinese state-owned construction firm Metallurgical Corporation of China (MCC) signed a deal with Indonesia’s MNC Land to build a theme park outside Jakarta as part of the ambitious project, the company announced in 2018. The deal is the latest to raise questions about the extent of Trump’s financial exposure to Beijing.The park – expected to be backed with up to US$500 million in Chinese government loans – is part of an “integrated lifestyle resort, known as MNC Lido City. However to be a successful global investors in Indonesia require an investor friendly domicile entity structure for the premium exit.

Business formation structural factors is a part of the new entity trend of Indonesian investment strategies to maintain capital flow. The investors request the founders of the target company to establish a new entity in a country that they consider to be investment friendly for them (in regard to tax treatment and exit possibility) so that they can achieve their main goal, i.e. exit from the investment with optimum upside.In choosing a suitable country for the holding company, investors must consider the tax provisions of the resident country and the relevant tax treaty. One thing that must be noted is that the Indonesian government regulates special purpose vehicles that are established in a tax haven country. Based on Minister of Finance Decree No. 258 (2008), a transfer of shares of a company that was established in a tax haven country, and that has a special relationship with an Indonesian company or permanent establishment in Indonesia, is subject to 20% of the estimated net sales amount.

Concerning capital flow into emerging GDP, there are many challenges to financial integration of global markets and many controls stiffening financial integration and portfolio diversification by transitional economies.

The South Korea is a 1.5 trillion dollar economy with average income of $40,000 dollars. Korea is an evolving mature economy and has expanded by 3.1 percent in 2018 it was the fastest growth since the third quarter of 2018.  South Korea is like all home bias markets they have informational asymmetries but not as opaque as other emerging markets, it is rank 39th for business openess.

South Korea is one of the best office and logistics markets for yield in 2018- 2019. In the office market; owners are expanding flex space for the 4.0 industrial revolution. Korea was expecting net absorption to rise to 230,000 sq. m. in 2018, a figure 1.7 times higher than the previous year. The demand is being fueled by the technology sector and expansion of the co-working sector and increased pre-leasing demand. In Seoul the vacancy rate is forecast to increase by 1.4% from a year ago due to new supply, and rents are expected to remain at similar levels to last year.

Seoul has thriving logistic market with modern state of the art supply hitting the market. GIC the Singapore SWF stated that it will buying Blocks A and B of Hwaseong Dongtan Logistics Complex in Gyeonggi Province in South Korea for US$570 million (S$780.7 million) through a real estate fund.The Singapore sovereign wealth fund said Blocks A and B are two newly completed, prime-grade distribution centres. They are part of the Hwaseong Dongtan Logistics Complex, which is located 35 km from Seoul and with good access to the Seoul-Busan Expressway, the No. 1 artery expressway in South Korea. Both blocks.There will be a movement away from existing logistics assets to modern facilities. Growing involvement of institutional investors and an increase in new supply over the past three years has also led to intensifying competition among landlords to secure tenants. Building new logistics space will be concentrated in Yongin and Icheon region of Gyeonggi province, where demand for logistics space is continuously growing. Approximately 1.75 million sq. m. of new Grade A logistics space was scheduled to be completed within Gyeonggi region in 2018. The new supply of Class A industrial space have attracted private equity and institutional investors to Seoul market and the outlook for the market is stable with slow growth for 2019,meaning on par with 2018. In a competitive environment, it is important for property owners to differentiate their assets, incorporating user wellness elements and all sorts of amenities to their logistics and office property asset.Pacific investors are attracted to the stability and growth of the Korean office market in 2019-2021. The Korean office markets has staring off 2019 with Singapore investors. Keppel Capital’s Korean unit has been named the preferred buyer for a trio of Seoul office buildings valued at a combined KRW 450 billion ($400 million), according to a report in The Korea Economic Daily. The outbound capital flow from Korean SWFs are altering their strategic thinking around global diversification and emerging markets.

On the issue of outflow of capital,KIC Korea Post the sovereign wealth fund is targeting $200bn AUM by 2020. South Korea’s sovereign wealth fund is reportedly attempting to nearly double its assets under management by 2020, its chief executive officer said at its anniversary ceremony this week at PEI. Korea Post are not considering lowering targeted returns of their global real estate and infrastructure portfolios despite intense competition and falling expected returns, as they are seeking further diversification into sectors expected to benefit from new business and consumer trends, or set for a cyclical recovery. KIC is making a thematic approach to target assets, in consideration of new market trends such as e-commerce growth and mobile market expansion which will lead to higher demand for logistics centers and broadband networks.Chung Hyun Lee Head of Real Estate, at Korea Post is taking a close look at sectors such as vessels, set to make a cyclical recovery, after it shifted toward mezzanine facilities in real estate and infrastructure over the past year, away from equity investment. Lee Says, he realize that he must become globally diversified to create value and yield, but is concern about mitigating risk through” joint ventures” as considers shift away from mature markets(OECD) and into transitional economies. Mr Lee states:“We have invested primarily in developed countries, particularly OECD countries.

“As for emerging markets, they have more risk factors we have to consider than developed markets.We are studying how to take and handle such risks.We have to cooperate with local GP’s(general partners) and partners.We have to invested heavily in core and core plus assets in developed countries (in the past 12 months).”“Selectively, on a case-by-case basis, we may take advantage of the Brexit for some assets which entail risks, though.”“Emerging markets can be an alternative to development markets, returns from which have declined sharply. But we have to make every preparation for currency and policy risks”. He stated that he would consider investing in shipping vessels which makes Indonesia an idea market with a 1800 island archipelago. For global investors all the cycles and trends are recognizable and so are the risk, when considering global diversification, joint ventures, infrastructure and alternative assets. The questions is what stage of the commercial real estate cycle in the Asia Pacific region are we at in?