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Jakarta Post

Regulatory reform needed to give Jakarta’s property sector a boost: Experts

  • Mardika Parama

    The Jakarta Post

Jakarta   /   Tue, July 14, 2020   /   01:14 pm
Regulatory reform needed to give Jakarta’s property sector a boost: Experts A worker uses an excavator to tear down part of Karang Anyar apartments in Sawah Besar, Central Jakarta, on Thursday. The Jakarta administration will construct new apartments for residents. (The Jakarta Post/Wendra Ajistyatama)

Experts have urged the Jakarta administration to reform its building permit (IMB) acquirement procedures to weather the economic impacts of COVID-19. 

Jakarta Property Institute (JPI), a nonprofit group that mediates dialogue between the government and real estate players, have urged the government to expedite IMB acquirement to attract investment and provide job opportunities amid the current economic woes.

Currently, it takes three to four years to acquire a IMB, and then an additional 18 to 36 months to finish the building construction. In total, it takes six years for a building to be constructed, the JPI has noted.

“During times where the number of layoffs has reached 6.8 million nationally, we need a sector that can provide job opportunities quickly and massively,” JPI’s executive director, Wendy Haryanto, said on July 9.

According to the organization, high-rise commercial and residential property construction has provided 450,000 job opportunities between 2018 and 2020 in Jakarta. Meanwhile, the property and construction sector have contributed to 17.6 percent of Jakarta’s regional GDP, JPI data showed.

Wendy stated that the influx of investment and projects from the sector could contribute greatly to the city’s employment rate and overall economy.

The ongoing health crisis has worsened the unemployment rate in the country. The government has estimated that some 5.5 million people may lose their jobs this year, pushing Indonesia’s unemployment rate to between 8.1 and 9.2 percent, up from 5.28 percent last year.

“There is still a potential for investment even though it’s leaning toward the residential sector,” Wendy said.

A recent survey held by online property marketplace 99.co and rumah123.com found that 76 percent of the surveyed respondents were still looking for a residential property this year amid the economic downturn.

Based on the marketplace survey, a quarter of the respondents, most of whom were millennials living in Greater Jakarta, were looking for houses priced between Rp 250 million (US$17,069) and Rp 500 million or Rp 1 billion and Rp 2 billion.

However, while there was still potential for demand, Wendy said the painstaking process for developers to obtain a IMB and file all required licenses had caused prices to go up while simultaneously dissuading investors.

The World Bank’s 2020 Ease of Doing Business (EODB) index estimated that it took 191 days to complete construction permit requirements for a standard warehouse in Jakarta, above East Asia and Pacific countries’ average of 132 days.

The cost of a permit in the capital has also proven to be expensive, at around 8.5 percent of property value, nearly double the average 4.5 percent of property value in East Asia and Pacific countries, according to  the EODB.

Besides cumbersome regulation, the construction and property sector are also facing high liquidity risk and immense pressure for shareholder returns due to the impact of COVID-19, Ernst and Young senior adviser Bernardus Djonoputro said.

“The unprecedented downturn and limited access to capital is forcing us to work hard and innovate in all aspects of our sector,” he said.

The pandemic has brought woes to the country’s construction sector, as inconsistent site closures and supply chain disruption caused by the health crisis are adding to project costs. 

Bandung Institute of Technology School of Business and Management lecturer Aries Firman said developers must adopt data analytics and utilize automation during their property’s construction to increase efficiency during times when liquidity was scarce.

To avoid regulatory hurdles, Aries also urged developers to make comprehensive plans prior to the physical construction phase. 

“There are many developers that plan as they go. When they are faced with compliance issues, they have to take a step back because they didn't anticipate them to begin with,” he said.

Furthermore, he added that developers could use building plans from a design library rather than start from scratch and consolidate their value chain to improve efficiency and reduce cost.