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ince the beginning of the year, interest from foreign investors to Indonesia has been seen strengthening. Rising optimism and growing investor confidence helped support the tremendous growth in the domestic stock market over the past several months, leading the Indonesian Stock Exchange (ISX) to become the best performer in Asia.

Concerns over the European debt crisis and the recent policy tightening in China have pushed global and regional investors to look for alternative markets, and among emerging countries, Indonesia is considered one of the most promising economies today.

Not only in the stock market, interest from foreign investors in the Indonesian property sector has also begun to increase. A number of fund managers and property developers mainly from Asian countries like Japan, India and Singapore have expressed their intentions to invest in the local real estate market.

While many overseas markets are still struggling to recover from the recent and ongoing crisis in Europe, Indonesia is relatively unaffected by the turmoil due to the fact that the market is primarily driven by domestic demand with very minimum exposure to the overseas investment and foreign pool of buyers.

The condition has helped mitigate the negative impacts of unpleasant events in the outside world. This, combined with a long-term positive economic outlook and a relatively calm socio-political environment, has once again put Indonesia back on the radar of international investors, at least for now.

However, despite growing interest from foreign investors, we have not seen a significant increase in the number of projects involving foreign investors in the market place. Similarly, enquiries from foreign individuals to buy property in Indonesia have also not changed much.

Unlike investing through the stock market or through project financing schemes, investing directly in real development projects or by buying property in Indonesia is regarded as difficult and complex for investors and individuals from overseas. Current laws and regulations and a lack of market transparency are the main concerns hampering foreign investment.

Their positive sentiment toward the country and their keen interest to expand business here sometimes collide with this issue. In some cases, these conditions can lead to project delays and even cancellations.

Meanwhile, the current favorable conditions for Indonesia are expected to change sooner or later. The question then is when? In other words: How long will it take for other markets in the region to fully recover and gain back the attention of institutional investors from alternative markets like Indonesia?

To put the matter into perspective, let's take a look at the current market conditions in the Asia Pacific region.

Generally, market activity levels have been improving across the region over the past few quarters. Meanwhile, the pace of growth and recovery has varied between property sectors.

Office: Demand contractions have come to an end in most markets except Tokyo. Demand from relocation and upgrading has strengthened gradually this year. Quite similarly, rental rates are close to bottoming out across the region - some markets are even in the upturn phase already.

Retail: Despite an increase in consumer spending across the region, retailers are still cautious about expansion. Yet, they have started to secure some space in anticipation for future sales, which helped demand growth in select major markets like Hong Kong and China. Most markets, except India, are expected to record positive rental growth over the next few quarters.

Residential: Leasing demand remained subdued except in Greater China and Singapore. These markets were the first to enjoy a pick up in pricing this year supported by corporate expansion and expatriate growth.

On the investment side, market activity in Asia Pacific started to grow on the back of higher prospective returns and ample liquidity. Transaction sales in the first quarter of 2010 have increased by over 50 percent compared to the same period last year.

Meanwhile, a significant portion of this activity still continued to be driven by local or domestic investors. Our view is that most markets will record relatively moderate growth in property prices over the course of 2010.

Overall, on the basis that the region continues to see economic recovery, property markets in Asia Pacific are seen to record further improvements in fundamentals and activity levels over the rest of 2010.

While many markets remain tenant favorable, rents are projected to strengthen gradually over the next few quarters. However, it is expected that full growth acceleration will begin in 2011.

By then, we expect the focus of multi-national and institutional investors will have returned to major established markets like Japan, Hong Kong, Singapore and Australia.

As such, the chance of smaller markets like Indonesia attracting foreign investors would be difficult unless there are measures and policies rolled-out by local stakeholders now to strengthen market fundamentals and improve attractiveness as well as competitiveness.

These should include providing various incentives for both foreign and domestic players, simplifying permits and regulations and also critical is to improve business transparency so foreign investors can feel safe and confident investing in Indonesia.

Thus, the role of the government as the local authority is important in setting-up a clear guidance and road map to create attractive investment packages for foreign companies and investors.

As a start, the much-debated foreign ownership law which has been the focus of public discussions over the past two years could prove a nice opening should the government finally launch the revised law this year. Hopefully we can hear the good news before the end of the year.

Otherwise, Indonesia will continue to be perceived as an unfriendly investment destination for foreigners and the chance to grab opportunities during the global crisis will pass without any meaningful impact on the market.