JLL Real Estate Experts on Luxury Properties in Indonesia
Developers have been delivering much smaller units in response to the luxury tax
Head of Research
Head of the Residential Group
BACKGROUND. JLL has over 50 years of experience in Asia Pacific, including Indonesia, in delivering various real estate services. Head of Residential Luke Rowe (LR), who is in charge of business development and Head of Research James Taylor (JT), who is responsible for the research outputs on all property sectors in cities across the archipelago, share their view on the property industry.
How do you personally defne luxury in the property industry?
LR: One of the things that have changed the face of 21st century is the advent of mixed use developments. This is where retail shopping malls, office buildings, hotels and apartments are often integrated in a single development. So, a luxury property in a mixed-use project can offer unparalleled convenience and facilities. Speaking about luxury property, I believe we can define it by several factors; location, size, standard finishes, recognition of developer and their track record, total number of units, scale of the development, facilities on offer, provision of car parking spaces and price. All of these relate to apartments and condominiums, while freestanding houses really come down to location, size and price.
Share us the challenges you face in Indonesia today.
LR: A challenge around luxury property in Indonesia is the advent of luxury tax and super luxury tax. In an effort to curb upward spiralling prices, the Indonesian government introduced a 20 per cent luxury tax for properties priced greater than IDR 10 billion in apartment buildings. This certainly had a dampening effect on the market.
JT: When we add taxes for goods and services, and super luxury sales tax, what we have here is the equivalent of stamp duty in which the total tax payable is about 37.5 per cent. We tend to think that the markets will be self-regulated and that the imposition of such taxes actually has hindered the development of the market. In fact, in response to the luxury tax, developers have been delivering much smaller units, which come under the luxury tax threshold.
How does luxury tax regime aﬀects the industry?
LR: Until there are significant adjustments made to the luxury tax regime, we continue to believe that developers will deliver smaller luxury units, which come under the luxury tax threshold. This is not necessarily the best thing for the development of the cities because it should be an even spread of larger and smaller units; and in some ways the market is being skewed artificially by these taxes.
JT: Comparing Jakarta to Hong Kong, US$ 1 million would buy you one unit in the most high-end condominium developments in Jakarta, but not in Hong Kong. Jakarta and Bali will have more luxurious properties, but it really comes down to the state of the economy, the healthiness of the resources sector and the overall business climate as well as confidence in government and the macro-economy.
What is your opinion on SOHO?
LR: One of the good things about developers delivering smaller luxury units, like SOHO, is that it captures both residential demand and small-business demand at the same time. It could develop more of Indonesian rental and property investment market, which up until today has been quite subdued. The smaller luxury units in great locations, with a reasonable ticket price and sitting underneath the luxury tax threshold, will continue to be hot properties.