Why Jakarta’s property boom isn’t a bubble

Dimas Ardian | Bloomberg | Getty Images

Property prices in Jakarta have more than doubled since 2009, but with a new infrastructure push in the city, the boom might only be getting started, analysts said.

"Jakarta just doesn't have a comprehensive transport plan," Nicholas Holt, head of research for Asia Pacific at Knight Frank, said last week. "The cost to the economy if it takes somebody hours to get across the city [can be huge]."

The price tag is estimated in the billions of dollars every year in lost time, fuel and health. The city's traffic was ranked the world's worst, with around 27 percent of driving time spent idling and drivers experiencing a whopping 33,240 "stop-starts" annually, the highest globally, according to the Castrol Magnatec 2014 stop-start index. More than 12 million motorized vehicles may ply Jakarta's roads and it's estimated that less than 15 percent of trips taken by the city's population of more than 9 million people are on public transport.

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But all that clutter hasn't held back property buyers, with prices of centrally located prime condominiums surging, Holt noted. The city's property price index climbed nearly 150 percent from the fourth quarter of 2009 through the end of last year, according to data from Knight Frank.

Transit boost

Holt is looking ahead to the opening of the city's first metro line, scheduled for 2018, although it isn't clear it will be completed on time.

"It will lead to some areas seeing huge growth, especially around walking distance of the new metro stations," Holt said. Land prices around the northern portion of the planned metro rose 30-40 percent by mid-2014 and areas around the southern end are expected to become a new hotspot, Knight Frank said.

Others also expect Jakarta's first mass-transit push will provide a big boost to the property sector.

"People will be ready to pay a premium to have access to efficient transport," said Alexander Karolik Shlaen, an economist and CEO of Panache Management, a luxury brands and real estate investment adviser.

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"It happened in Bangkok as well, where sometimes high-flying businessmen and even politicians had been seen leaving their chauffeur-driven cars stuck in a hopeless traffic and run for a train to make it on time for their meetings. Being close to train station became a sales point even for very upscale condos in Bangkok," Shlaen said via email.

Building push

Developers appear to agree, with a lot of new apartments on the cards. Around 10,701 units were added in Jakarta in 2014, with an additional 47,269 units likely in 2015-16, Colliers International said in its fourth-quarter note. For 2015, it estimates more than 38,000 units could be added, or around 25 percent of the total existing supply.

Outlook for Indonesia: Still going strong
Outlook for Indonesia: Still going strong   

A lot of those units could get sopped up if one of Indonesian President Joko Widodo's planned reforms -- allowing foreign investment in apartments costing at least 2.5 billion rupiah -- goes through.

"It will add a sizeable and attractive property destination to regional and especially Singaporean investors, who buy overseas properties in billions of U.S. dollars," Shlaen said.

Projects and reforms are key

To be sure, much of the expectations for property-price gains are contingent on infrastructure projects and economic reforms coming to fruition.

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But many analysts are optimistic.

"If President Jokowi can get 50 percent of his election manifesto achieved, I think that's a big success for Indonesia," Jalil Rasheed, investment director at Invesco, told CNBC last month. "We've never had a president in Indonesia who came out with a clear plan or priority list on what he wanted to do."

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1