Shoeb Kagda, Jakarta – International investor confidence is slowly returning to Indonesia, with upscale commercial properties and companies in export-oriented businesses fast-becoming prime acquisition targets, sources told BT.
A number of investors from the United States, Europe and Asia have been flying into Jakarta in the past few weeks to sniff out deals and to enquire about distressed assets under the control of the Indonesian Bank Restructuring Agency (Ibra).
BT understands that representatives from government-linked institutions such as Invesco Malaysia, which is an investment arm of the Sultan of Brunei, as well as the Government of Singapore Investment Corporation have been making regular trips to the Indonesian capital.
But while these institutions may not have much internal restrictions placed on the size of their investments, they are also unlikely to pick up whatever is available.
"They may have an open cheque book but they are not about to rush in," said one source who has met some of these representatives. "If there is a good deal, they will snap it up, but they are not acting like Father Christmas."
The renewed investor interest in Indonesia follows President Abdurrahman Wahid's recent whirlwind tour of eight Asian countries and the US, with the government now seen to be more pro-business and foreign investor-friendly.
A study by Indonesia's central bank, Bank Indonesia, that showed business activity continued to improve in the third quarter and is likely to be even better in the fourth quarter has also helped boost investor confidence. And so did the announcement by the Central Bureau of Statistics that the economy grew by 1.54% in the third quarter.
International investors now want to see greater transparency, especially if they are looking to invest in companies, given the risks involved. Many Indonesian companies, both private and state-owned, have huge US dollar debts which have been hidden from their books.
This is why prime commercial real estate is the most attractive option for many investors. Not only have prices fallen significantly over the past two years, interested investors can also view them directly and make their own assessments.
Jeffrey Hong, a director of PT Procon Indah, a property consultancy associated with Jones Lang LaSalle, told BT that the first signs of a real estate sector turnaround are beginning to appear as business activity starts to pick up.
"The signs are good for the market to improve but a recovery to pre-crisis level will take a long time," he said. "Over the next six months, many companies which cut back operations last year, will expand their businesses again and this will have a positive impact on the property sector."
He added that his office has been receiving a steady stream of inquiries from local companies looking for office space in the central business district. "As soon as Ibra starts to offload some of the assets under its control, the better properties will go fast."
Jones Lang LaSalle itself has set up a US$1 billion fund in Singapore to buy good prime office buildings in Indonesia.
Mr Hong noted, however, that investors, especially those from the US and Europe, were looking for yields of between 12 and 15% from Indonesian investments. This is much higher than the expected yields in neighbouring countries because of the high risk premium attached to Indonesia.
At current rental levels, even the best commercial and office properties in Jakarta are yielding less than 8%, so closing deals is difficult, he said.
Another factor that might act as an obstacle for investors is the huge supply overhang for office space in the city. Currently, there is about 690,000 sq metres of empty office space in the city, out of a total stock of 2.86 million sq metres.
"During the boom years, the take-up rate went as high as 200,000 sq metres a year so it will take a minimum of three years just to fill the existing supply assuming there is no new supply coming on to the market," he said.
As for investments in companies involved in export-oriented businesses, the main concern is social stability in Indonesia, especially in the light of separatist movements in provinces such as Aceh and Irian Jaya.
Andre Cita, an American investment consultant based in Jakarta, noted that many of his clients in the US are paying close attention to opportunities in Indonesia but they remained wary of the social situation.
"Most investors are looking for stability ... that is the primary concern. Once that happens, we will see money coming in," he said.
He added that many of his clients are interested in mining, oil and gas exploration and other export-oriented businesses. "Most people in the US are looking for investments that are dollar earners."
Aside from the purely commercial aspects, US investors have also been encouraged by the political changes that have occurred in the country over the past six months. Indonesia held peaceful general elections in June and presidential elections in October.
"The political changes here fit the perceptions of the US investors and they are more digestible to the American palate," said Mr Cita.
But he warned that while the overall picture of the country was growing clearer for international investors, the billions of dollars that have been anticipated by some Indonesians are still some way off.