JLL real estate experts on luxury properties in Indonesia

Real estate developers have started offering significantly more compact apartments in response to the introduction of a luxury tax, note JLL experts James Taylor, who leads the research division, and Lukom Row, head of the residential sector. JLL has over fifty years of experience in the Asia-Pacific region, including Indonesia, and offers a wide range of real estate services. In this article, Row and Taylor share their insights on current trends in the real estate market.

How do you define the concept of "luxury" in the real estate sector?

One of the significant changes that have shaped the 21st century is the introduction of multifunctional complexes that incorporate shopping centers, offices, hotels, and apartments. Thus, luxury real estate in such projects can offer a unique level of convenience and a variety of services. When discussing luxury real estate, we can highlight several key factors:

• location
• square
• quality of finishing
• the reputation of the developer and their successful experience
• total number of objects
• project scale
• available services
• availability of parking spaces
• price

For individual houses, the main parameters are location, area, and price.

Tell me about the difficulties you are facing in Indonesia today.

One of the main issues in the luxury real estate market in Indonesia is the introduction of luxury taxes and super luxury taxes. In an effort to curb price increases, the Indonesian government has imposed a 20% tax on properties worth more than 10 billion rupiah in apartment buildings. This has certainly had a negative impact on the market.

DT: By adding taxes on goods and services, as well as a tax on super-luxury goods, we arrive at an equivalent of the stamp duty, with a total amount of about 37.5%.

How does the luxury tax affect the industry?

LR: Until significant changes are made to the tax regime, we continue to believe that developers will only offer small luxury units that fall under the tax threshold. This negatively impacts the development of cities, as there needs to be an even distribution of both large and small properties; in a sense, the market is artificially distorted by such taxes.

DT: If you compare Jakarta and Hong Kong, for 1 million dollars in Jakarta you can buy a one-bedroom apartment in the most upscale residential complex, whereas in Hong Kong that amount wouldn't even be enough for the simplest housing. While Jakarta and Bali can offer more luxurious options, important factors still include the state of the economy, the health of the resource sector, the overall business climate, as well as the level of trust in the government and the macroeconomic situation.

What is your opinion on SOHO?

One of the positive aspects of developing smaller luxury units, such as SOHO, is the ability to simultaneously meet the needs of residents and the demands of small businesses. This can help to develop the Indonesian rental and real estate investment market, which is currently in a rather depressed state. Small luxury units located in prime locations, with moderate pricing and below the luxury tax threshold, will continue to be attractive offerings in the market.