How New Variants of Covid-19 in India Impact Indonesia’s Property Business
| Indonesia Research Institute Japan
“This post is written by Raffi Alfananda, Market Research & Business Development at PT Indonesia Research Institute Japan Jakarta, a global management consulting firm on business strategy.”
A geographical region with special economic norms that are more liberal than the current economic regulatory framework within a country is a Special Economic Zone (KEK). The Special Economic Zone is an area which in the geographic and jurisdictional sense is a free trade area, with duty-free facility and ease on the import, and open as wide as possible of capital goods for raw commodities partially exported. There are more specialized territory types including FTZs, export processing zones (EPZ), free zones (FZs), industry states (IE) and free ports etc. Special Economic Zones (KEK) have a more specialized territory type.
Since 2009, KEK has been established in Indonesia. The program was introduced as a form for developing different types of economic areas in previous periods. This program is probably a program for the regeneration and development of previous economic zoning programs, such as the Free Trade and Free Port program of 1970, the 1972 Development of the Bonded Zone and the 1989 Industrial Zone Continued and the 1996 Integrated Economic Development Zone (KAPET).
It was inspired by the success of several nations that previously adopted the system, such as China and India. The program was called the Special EconomicZone (KEK). In order to keep increasing economic growth in these areas, the success of the two countries successfully attracted investors and created jobs there.
Special economic zones (KEK) that are being built in Indonesia and other developing countries are not only bringing benefits. KEK can also harm the surrounding area due to externalities. Because of these losses, the government must be very careful in planning special economic areas. Here are some of the advantages and disadvantages of the Special Economic Zone (KEK) :
- Advantages
- Creating field of jobs
Since there are very significant investment investments in special economic areas, economic growth in the region is generally very rapid. The Special Economic Area creates employment and the rapid economic growth of many new businesses and factories is marked by the emergence of their luck. Many new enterprises collapsed immediately due to inexperience or lack of investment, but few succeeded.
- Boosting economic growth
The creation of economic agglomeration and opening up of jobs will undoubtedly inspire regional economy passion. Improvement in productivity can occur as infrastructure, quality of life and quality of performance in the KEK area are improved. This growth in economic activity also led to an increase in regional economic income.
- Improving the quality of regional infrastructure
Local and central governments will be promoted to improve regional infrastructures, especially those supporting economic growth, to support increasing economic activity.
- Boosting international trade
The existence of special economic areas specifically targeted to serve the export market can increase trade between countries. Easier export-import regulation also contributes to trade growth by incentivizing companies operating in the area. Is the increase in trading a positive impact? It Depends on how we view the advantages and disadvantages of such trades
- Disadvantages
- Health threatening
People’s health is threatened by living in the region of special economic zones or industrial centers. Disposal of waste from production, fire and serious congestion vulnerability to diseases in the surrounding community. Respiratory conditions due to air pollution are a common condition. People living in the region of industrial estates have to wear masks for respiration.
For example, in India Many of its people suffer from digestive disorders since industrial activities and waste already pollute the main rivers heavily, and mental illness can happen if noise pollution and congestion become too tolerable. Noise pollution can affect sleep rhythms and human psychological conditions, and noise pollution may also lead to severe stress and depression, because of the difficulty of trying to have a quiet time and sleep.
- Traffic
Economic activity in a particularly active economic area definitely increases transport activities in the area. Not only companies operate in kek but all elements of the company around kek are aware of the influence of these traffic jams. The heavy traffic caused by KEK can therefore harm the surrounding community, even if it is not part of the KEK operation.
- Environmental damage
Over-exploitation of natural resources or overdeveloped economic activity can lead to pollution and loss of local biodiversity. For example, acid rain is caused by factories / plants that burn coal as their energy source. Therefore, when acid rain occurs, the impact is felt by both humans and animals and plants living nearby. Another example is smog that occurs due to pollution of particulate matter and toxic gases close to the ground level.
- Changes in land function
Economic activity which rapidly grows will certainly boost the region’s economic rent so that land prices also rise.
This can lead to changes to industry and housing in the function of rice fields and agriculture. Moreover, land transfers often force small-scale farmers to sell their land because they lack incomes and pay taxes, or because developers are under severe pressure.
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Authored by : Fitri Aulia | 22 December 2020
Recent Property Development
The Covid-19 pandemic has dealt a quite severe blow to the property business sector in 2020. During the PSBB period, business activities were very sluggish and it can be said that some business actors suffered severe losses.
However, entering the new normal period, the economic activity in several sectors including property has begun to revive from the previous period. The role of the government triggers the revival of Indonesia’s property business activities.
Government Stimulus
The assistance provided by the government is in the form of subsidies or incentives for interest subsidies to debtors of public housing credit (KPR), which is contained in the Minister of Finance Regulation (PMK) Number 138 / PMK.05 / 2020 and amendments to PMK 85 / PMK.05 / 2020 regarding the guidelines for providing interest subsidies in the effort to implement the National Economic Recovery program.
In early March 2020, the Government decided to increase the allocation of housing financing assistance by IDR 1.5 trillion for Low-Income Communities (MBR). This was stated by the Director General of Infrastructure Financing of the Ministry of Public Works and Public Housing (PUPR) Eko Djoeli Heripoerwanto in a webinar, Wednesday (29/7/2020).
In addition, the Government also has Bank BTN as their partner-collaboration to implement their OMH Program aimed at Low-Income Communities (MBR) with low interest rates and low installments for the purchase of a prosperous tread house and a welfare apartment.
Bank BTN noted, in 2015 they have provided housing financing assistance totaling 474,099 units. Then in 2016 as many as 595,540 units, in 2017 to 666,806 units, in 2018 to 755,093 units, and in 2019 to 735,749 units.
As of September 2020, BTN has provided home ownership credit support (KPR) of 93,448 units which cost as much as Rp. 15.6 trillion. These support provided by BTN is significant for the survival of the business property sector.
BTN commitment on supporting business property has not slackened. In fact, during the pandemic, BTN continuously provides support for the government program.The distribution of subsidized KPR is still a mainstay of BTN for the One Million Houses program.
Source : Bank BTN (visit : https://www.btn.co.id/id/Conventional/Product-Links/Produk-BTN/Kredit-Konsumer/Pinjaman-Bangunan/KPR-BTN-Subsidi)
Positive Trend in Q3 2020
There is a positive trend during Q3 2020 after it drastically dropped earlier in the year, indicates there is potential for the revival of Commercial Property Demand in Q4 2020 and the next Q1 2021.
Source : Bank Indonesia
Hotels and convention halls are two sectors whose demand has risen quite drastically in the Q3 after falling badly in the previous quarter. This demonstrates positive potential for its development in the future. Meanwhile, the demand of apartment remains low and still struggles to revive until now.
Growth of Commercial Property Demand in Jabodetabek
Overall in Jabodetabek, the commercial property sector also experienced a positive increase during Q3 2020.
In Jakarta, all commercial property demands show positivism with hotels being the most prominent in their development at Q3 2020. After previously shows a negative number, the total index in Q3 has at least increased to be positive.
Source : Bank Indonesia
Meanwhile, the growth in the total commercial property index jumped drastically in Bogor, Depok and Bekasi. Same case with Jakarta, its hotel sector are also the most prominent in reviving, at least in the Q3 2020.
Source : Bank Indonesia
As we can see on charts above, the hotel segment shows a great improvement in demand. This was driven by various kinds of promotions offered by hotels to adapt in this situation such as providing huge discount, staycation packages, working from hotels offer, and wedding reception packages.
Why Hotels?
As Indonesia gradually eases lockdown restrictions, the hotel occupancy rates across the country including Jakarta, have slowly started to pick up. However this is not without several efforts and sacrifices driven by people in the hotels sector to improve and revive the hospitality business sector in Indonesia.
To get through this hard times, efficiency and innovation are the main keys. Therefore, there are several trends created specifically to adapt to this era. Hotels competing with each other to offer a flood of discounts. To further intensify its sales strategy, there are several e-commerce platforms that is becoming a great place to advertise rooms and staycation packages, such as Traveloka. The Buy Now Stay Later also sticks to this trend.
Hotels discounts on Traveloka (Source : Traveloka)
Another new trend is the Work From Hotel (WFH). As you might know, the abbreviation of WFH was initially stands for Work From Home. To connect the dots, Working From Hotel then exist and created because there are more and more office workers are getting bored with the atmosphere of their house and desperate to look for a new atmosphere. It’s a trend where hotels prepare rooms, complete with equipment and facilities to work (e.g : Wi-Fi , stationer, and free printing facilities,etc).
Source : Instagram @harrisfxsudirman and @arunasenggigi
During the transitional PSBB period, indoor wedding receptions are allowed to be held again after previously was banned temporarily due to the massive increase of the Covid-19 spread. This becomes the opportunity that triggers the revival for the hotel business.
However, this permission is also accompanied by the requirement to fulfill and comply with the health protocols made by the government. These includes the limitation of attendees to a maximum of 25 percent of normal capacity. Then, the seating distance for visitors is set at least 1.5 meters. Visitors are also prohibited from passing by or changing seats. The eating and drinking utensils must be sterilized, while the serving of food is prohibited from using a buffet. Last but not least, the wedding staffs are required to wear a mask, face shield and gloves.
One of the breakthrough in this trend was the make of “Virtual Wedding” ever since June 2020. As this was the case held by The Sunan Hotel Solo, which offer a virtual wedding service package for 44.5 million. The event is only attended by the couple and their family members, meanwhile guests are able to attend the wedding virtually through various platforms such as Zoom, YouTube, Facebook and Instagram, while enjoying food sent by the hotel to their residences.
Source: The Sunan Hotels Solo
Finally, we might conclude that the property business in Indonesia has the potential to develop more despite the massive impact it has taken from pandemic outburst. Combining the stakeholders effort and the government’s support to stimulate this sector are expected to help revive the business sector in the future.
References
Bank Indonesia. (2020). Perkembangan Properti Komersial (PPKOM).
Kementerian Pekerjaan Umum dan Perumahan Rakyat. (2020, November 3). Tingkatkan Kepemilikan Hunian Layak, Realisasi Program Sejuta Rumah Hingga Akhir Oktober 2020 Capai 601.637 Unit. Retrieved from https://www.pu.go.id/berita/view/18970/tingkatkan-kepemilikan-hunian-layak-realisasi-program-sejuta-rumah-hingga-akhir-oktober-2020-capai-601-637-unit
Kementerian Pekerjaan Umum dan Perumahan Rakyat . (2020, January 3). Capaian Pembangunan Rumah Tembus 1,25 Juta Unit. Retrieved from https://perumahan.pu.go.id/berita/view/227/capaian-pembangunan-rumah-tembus-1-25-juta-unit
Kompas. (2020, July 29). Alokasi Tambahan Rp 1,5 Triliun untuk Perumahan Terkait 3 Program. Retrieved from https://properti.kompas.com/read/2020/07/29/191334021/alokasi-tambahan-rp-15-triliun-untuk-perumahan-terkait-3-program?page=all
BUMN inc. (2020). Target Penyaluran KPR Bank BTN Naik Menjadi 300.000 Unit Per Tahun. Retrieved from http://bumninc.com/target-penyaluran-kpr-bank-btn-naik-menjadi-300-000-unit-per-tahun/?more=2