Market Commentary: The effect of the Jakarta Large-Scale Social Restrictions rules phase II on the property industry

1. How will the new Large-Scale Social Restrictions rules starting 14 September 2020 for DKI Jakarta affect the property industry?

The existence of Large-Scale Social Restrictions (also known as Pembatasan Sosial Berskala Besar (PSBB) phase II) will make the situation more difficult for the property industry. Since the first phase of PSBB, we have seen a slowdown or decrease in traffic from shopping centre visitors which leads to the decline in sales that affect most stores. With the Jakarta Government putting the "emergency brakes" back on, these are not the ideal conditions for the property industry, as there will be a decline in sales and revenue.

• In the residential sector, we see many delays in purchases, where the purchase interest is also reduced. In the early stage of PSBB phase I, many people preferred not to make large or unessential purchases. While we were in the PSBB transition, purchases may have increased although not significantly; now, due to the second phase of PSBB, people will most likely return to delaying purchases.

• For the commercial sector such as offices, PSBB phase II will certainly return us to our original position, where offices are expected to apply a work-from-home (WFH) system to all of their employees. That way, as we may have already experienced it before, it has an impact on the space needed by companies.

On the tenant side, while they have not yet recovered from the initial PSBB situation, now they have to return to experiencing new difficulties during the second phase. Their turnover will again decline, and tenants will eventually return to negotiate with the building owners for their lease and payment term.

• For hotels, as the sector that was the first to be affected by PSBB regulations, it had improved somewhat during the transition period; now it's back to the conditions in the beginning. At the beginning of the first PSBB, the decline occurred up to 10% for certain cases, because business and leisure activities decreased significantly. As for now, with the existence of PSBB phase II, the hotels sector must return to find other strategies so that it can survive as was done in the initial PSBB.

• Retail was one of the sectors that was also quite affected from the start; during the transition period, there was a lot traffic, although not enough. For a shopping centre to have good performance, they needed to have high occupancy and high traffic, so a transaction could occur. Now with the second phase of PSBB, retail would face difficulty. With the existence of a number of provisions that apply to shopping centres or retail, it could make it more difficult for the performance of this sector to recover quickly.

2. How could the prediction of recession in the third quarter affect the property industry nowadays?

The property industry is closely related to economic growth. If in the third quarter it shows negative numbers again, then we do not rule out the possibility of entering into a recession. Even without PSBB, many economists have predicted a further decline, although not as steep as in the second quarter. Although regionally, globally, economic recession is actually a common thing in these conditions. But the question is, how do we get out of that recession quickly?

With current economic conditions, people’s buying power is reducing, and people tend to be more selective in making purchases, basic needs will be prioritised, and this will have an impact on property as well. Even without PSBB, we assess the possibility that by the end of 2020, the growth or trend will decline, because the growth in property is in line with gross domestic product (GDP). If the GDP at the end of the year is expected to plummet to -2.7% (according to Oxford Economics), it means that it is difficult for property to move to its original condition, and this means it still needs more time to recover. While we hope when the conditions show some improvement, hopefully in the second semester of 2021, things can start to rise for the property industry.

3. How can the property sector be a secure investment while the current situation is unpredictable?

As previously known, now would be the right moment to invest. Property is actually the right industry in which to invest. People should not just view the situation from the short-term perspective because the property industry has a cycle. At the moment, even though it is quite low, there are times when property will rebound. We see many investors, especially those from overseas, now already preparing because they anticipate this rebound to occur. Therefore, this is the right momentum and must be considered in the long term. This means that when property enters its rebound position, the product is ready and can be absorbed by the market.

That's why we shouldn't see this moment as a limitation or a challenge. We see what could be from these property market conditions can create new opportunities to maximise property potential in the future.

Ask Question

Liked what you read? Read more from our Research Page and subscribe to our mailing list for more thought-pieces on the latest in commercial real estate.

 


Related Experts

Ferry Salanto

Senior Associate Director

Jakarta

As Head Research Department, Ferry is in charge in providing property market knowledge for internal purposes and for clients. The scope of sectors covered in the quarterly market report comprises office, apartment, retail, hotel and industrial estate.

In regional tasks, the Heads of Research of each country work together in providing regional market reports covering the Asia Pacific region and globally. Currently Research Department is not only operating as a cost-centre department, as he and his team have been assigned by the Central Bank to provide monthly market information.

On the consulting front, the task involves providing a wide range of advisory services to our clients. Working closely with Consulting Department, we help clientsby preparing feasibility studies to determine whether their property projectsare viable from both financial or marketing aspects. 

View expert