There were signs of recovery during H1 2016 with number of repeat corporate clients who signing new one-year lease contracts. 

Forecast at a glance:

• Demand - Besides power related industries, we anticipate one of the driving factors creating demand for residential property will be the infrastructure sector. 
• Rent - Landlords are being forced to be more realistic about rental rates, increasing their marketing efforts and being open to alternative rental models. In certain cases landlords are willing to negotiate and adjust the rental rate down by as much as 35% in order to lease their property rather than lose income by leaving the units vacant. 

The expatriate housing market started to show signs of recovery during the first semester of 2016. A number of inquiries came mostly from repeat corporate clients who sign one-year contract extension (as opposed to the traditional two-year contracts). Many expat employing companies are currently only willing to commit to a maximum one-year contract and very few of them are willing to accept two years rent in advance even if the working permit of the employee has been issued for a two year period. Furthermore, many landlords are willing to negotiate less than one year lease extension due to the realization of the current market condition and the drastic drop in inquiries for expat housing.

In some cases occupiers are taking advantage of the situation and may relocate to other residential projects that offer either lower rents or at least equal rents but with better amenities. Typically multinational companies prefer their expat employees to reside in housing compounds rather than in stand alone houses for security reason. Residing within a compound or in a serviced or regular apartment building allows these companies to take advantage of security measures that are already in place. This is often the easier security solution for both the employee and employer. Well-developed housing compounds such as Executive Paradise, Atmaya Residence and Astoria Residence continue to attract a sound number of tenants and continue to maintain their high occupancy despite the current market condition.

Executive Paradise is one of the largest housing complexes which is developed on 20 hectares of land in Cilandak, South Jakarta. This complex provides a relaxing and peaceful sanctuary seemingly set away from traffic noise and air pollution making it one of the most popular choices within the expat community. , Situated right next to Executive Paradise, Astoria Residence complex offers luxury houses featuring 4-5-bedrooms and each unit is equipped with a swimming pool and ample living space. Developed specifically to service the expat community, Astoria Residence tenants can also take advantage of the club house and mini market located in the adjacent Executive Paradise compound. 

The rising supply of newly completed upscale individuallyowned apartments together with the reduction in the number of expatriates entering the country have been a major factor in pushing landlords to offer more favorable rental rates and more attractive contractual terms for tenants. Consequently, landlords are being forced to be realistic about the rental rates, increasing their marketing efforts and being open to alternative rental models. In certain cases the landlords are willing to negotiate and adjust the rental rate down by as much as 35% in order to let their property rather than losing income by leaving the units vacant. 

The number of expatriates arriving (those being issued working permits) has yet to recover. According to data from Ministry of Manpower, the number of expatriates with a working permit during January-February 2016 was still 41% lower compared to the same period in 2015 (8,980 people). 

The second quarter of each year (April – June) is typically the peak season for obtaining new inquiries from expatriates who are assigned to work in Indonesia. During this period orientation activities intensify prior to their relocation process in order to understand and appraise the geographical situation while at the same time familiarizing them with the local culture. During their familiarization trips, normally they will view houses or apartments, medical facilities, supermarkets, shopping malls, to get an idea of where they might want to live in Jakarta. For expatriates relocating with children, the proximity to the preferred international school will typically take first priority in deciding home location. Normally the relocation details need to be decided prior to the start of the school academic year in August or September. 

The plummeting global oil prices have pushed corporations in this sector to restructure their operational cost, including budgets for their expatriates’ accommodation. This sector has experienced a downward trend over the last few years and thus businesses have been forced to streamline their expenses. Budgets have been reduced therefore pressuring multinationals to reduce the number of expatriate workers overseas or be more provident with the individuals that are currently in country. One of the ways this is being implemented is by searching for a more affordable accommodation. Currently finding vacant houses and apartments for lease is not as challenging as in previous years. Based on our data, during 2012 – 2013, the vacancy rate of typical expatriate homes was below 10 percent, while on the contrary, since 2014 onward the vacancy rate is expected to hit a double digits as we have witnessed in the first quarter of 2016. 

Amid the slowing global oil and gas business, other sectors seem to bring exuberance to the expatriate housing market going forward. In line with the government’s massive plan to provide adequate energy supply, some major multinational companies have already started to play a part in this sector. Besides power related industries, that are anticipated to become one of the driving factors for residential needs, the infrastructure sector seems to also become a trigger to create demand. 

During the current sluggish market where the amount of housing inquiries has noticeably diminished, landlords are generally accommodative to the clients’ needs particularly amid the glut of residential supply. This situation has forced landlords to be more flexible in deciding the rental tariff, or alternatively have an empty cash-burning dwelling. During the first semester of 2016 we have experienced discounts ranging between USD $50 to USD $1,000/unit/month for standard expat housing compared to the previous semester. Based on our experience, the biggest discount was granted for relatively small stand alone houses with the size of 400 – 500m2 which previously commanded a USD $5,000/unit/month price tag. This is unquestionably due to the number of vacant units of this type of housing currently available on the market. More luxurious homes are not as subject to this range of discount because of the reduced number of units available. 

View the full report here.