With its huge population and rising middle-class, Greater Jakarta is likely to benefit from progressive infrastructural improvements, fuelled by a pick-up in government spending, heralding good news for the city’s residential market.

“Changing lifestyles in Jakarta mean that young professionals and the wealthy older generation are likely to view condominiums as increasingly attractive investment and lifestyle options,” says Luke Rowe, Head of Residential JLL Indonesia.

“Jakarta residents, who suffer some of the world’s worst traffic congestion and commuting time challenges, now see the value of vertical living. The off plan sales rate for new projects is still a very healthy 77 percent clearance rate. This is down from 82 percent at the start of 2015,”

As a general rule of thumb, GDP growth of over 5 percent in Indonesia is considered healthy and while 2015 saw GDP growth come in below this threshold, the outlook for 2016 is still positive. An improvement in GDP growth would go some way towards boosting market sentiment and residential sales and while infrastructure spending, another key driver for residential property, was slow to take-off in the first half of 2015, government projects began to gain traction in the second half of the year.

But headwinds still remain.

“Off-plan sales dropped off significantly in mid-2015 as changes to the super-luxury tax dampened sentiment at the top-end of the market. At the same time, relatively slow economic growth impacted demand, as did the Rupiah depreciation, which largely affected sentiment rather than affordability,” claims Rowe.

The Indonesian Rupiah (IDR) depreciated significantly against the U.S. Dollar throughout 2015 and some investors are making unfavorable comparisons to 1998, when the USD/IDR rate hit IDR 16,650.

Whilst today’s situation is completely different and an economic meltdown is highly unlikely, currency stabilization is an important factor in terms of restoring market confidence.

“Fears that the long anticipated raise of U.S. interest rates would cause the Rupiah to slide further were unfounded – at least in the short-term – and the IDR experienced a degree of stability towards the back-end of the year, remaining a top performing currency despite the wider economy’s turbulent start to 2016,” Rowe adds.

New super luxury tax regulations came into effect in the second quarter of 2015 which increased the tax burden borne by the purchaser: the price threshold was reduced to IDR 5 billion from IDR 10 billion, while the size threshold of 150 sqm became somewhat irrelevant. In the final quarter of 2015, the government also implemented changes to luxury (as opposed to super-luxury) taxes whereby a size threshold was replaced by an IDR 10 billion price threshold.

Rowe believes that while this should go some way to having the desired effect of boosting demand, the fact that the luxury price threshold is higher than its super-luxury counterpart is somewhat counter-intuitive. Adding to this, super luxury tax, when imposed, also increases the chances of the purchaser undergoing some tax examination and many investors have a strong aversion to this.

Nevertheless, research from JLL shows that sales improved in both Q3 and Q4 of 2015 with middle and lower-middle grade project gaining traction, where affordability was greater for owner occupiers and the tax burden lower. Demand for luxury products remained relatively thin at year-end and prices remained largely flat in most condominium segments in the final quarter of the year with some minor increments in the mid-market. However, interest from local and international developers remained steady, indicating the strong longer term potential of the market.

Rowe believes a large, growing population and expanding middle class provide the fundamental demand for residential properties in Jakarta and that investors are likely to continue to seek to tap into these demographics.

The much discussed tax amnesty continues to linger as an investment locomotive, but implementation and a clear timeline remains unclear. However, Rowe believes that if this regulation did come to pass, the implications for the residential market would be very positive.

“A significant volume of offshore capital would likely be repatriated and eventually invested in real estate – as a favourite asset class.”