INDONESIA REPORT CONSTRUCTION MARKET UPDATE DECEMBER 2015

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1 REPORT CONSTRUCTION MARKET UPDATE

2 REPORT MARKET TRENDS INDONESIA ECONOMY President Widodo aims for Indonesia s gross domestic product (GDP) to exceed 7.0% at the end of his 5-year tenure in 2019, by building massive infrastructure facilities. According to the Central Statistics Agency (BPS), the GDP expanded 4.73% year-on-year (y-o-y), falling short of the central bank s expectations of 5.7% set in the state budget. Inflation has been high over the past two years, particularly due to adjustments in Indonesia s subsidized fuel policy. Inflation only achieved 3.1% in 2015, lower than the 5.0% goal. For 2016, Bank Indonesia targets an inflation rate in the range of 3.0%-5.0% y-o-y. The rupiah averaged 13,392 per US dollar in The Indonesian rupiah fell to a 17-year low against the US dollar in early September 2015, causing the economy to grow at the slowest pace since 2009, after foreign funds sold the nation s bondsm due to the faltering Indonesian economy, weak domestic consumption and foreign investment, along with exports of Indonesian commodities amid China s slowdown. In addition, prolonged delays in government spending under Jokowi s administration for public infrastructure works, as well as the forest fires and haze between June and October 2015 have constrained the economy, costing the nation an estimated 221 trillion rupiah (US$15.9 billion), around 1.9% of GDP. This amount is more than twice the reconstruction cost after the 2004 Aceh tsunami, according to the World Bank. While Jokowi s administration has met 60% of its spending target for 2015, bureaucrative redtape and ineffective operation of infrastructural projects are expected to ease in 2016 as the government is reportedly more committed towards more public investments in infrastructure, health, and social assistance programmes. For 2016, the World Bank revised its growth forecast for Indonesia s economy to 5.3% from 4.7%. The Asia Development Bank (ADB) has also projected the Indonesian economy to grow to 5.3% in Bank Indonesia forecasts economic growth to rebound in 2016 at 5.2%-5.6% from a 4.7%- 4.8% forecast for

3 REPORT MARKET TRENDS CONSTRUCTION INDUSTRY Gross domestic product from the construction sector increased to 223,600 billion rupiah (US$16.14 billion) in 3Q 2015 from 213,200 billion rupiah (US$15.39 billion) in 2Q 2015, according to Statistics Indonesia (BI). One major obstacle to business growth in Indonesia has been about urban infrastructure shortages. To address the city s traffic issues, infrastructure plans currently include a 27,710 billion rupiah (US$2 billion) airport railway, a new Mass Rapid Transit (MRT) that is slated for completion by 2018 as well as a light-rail system. The construction of a ring road in Papua to improve social services and reach out to isolated communities in the province is expected to start in early 2016 and complete before The Indonesian government had set aside 639 billion rupiah (US$46.1 billion) for this construction. The Jakarta-Bandung line is part of a 750km high-speed train plant that would cut across four provinces on the main island of Java and end in the country s second largest city of Surabaya. The trains are expected start operating in early 2019 with speeds of 250km per hour. The Indonesian government further aims to significantly develop the country s healthcare sector through its new National Health Insurance programme by Requiring the construction of 150 new hospitals, this initiative is anticipated to bring basic care within the reach of everyone in the country and is expected to significantly boost the healthcare building industry. Barring any unforeseen market conditions, building tender prices in Jakarta are anticipated to increase by about 1.0% to 4.0% in The Jakarta-Bandung high-speed railway is also slated to start construction by January In a joint venture between an Indonesian consortium of four state-owned companies and China Railway International Co. Ltd, this creates Southeast-Asia s first high-speed rail service. Costing about 76,203 billion rupiah (US$5.5 billion), the rail spans 142.3km and is planned to take about 3 years to construct. 2

4 REPORT MARKET TRENDS PROPERTY MARKET The decline in Indonesia s residential property sector resulted from both policy actions and economic circumstances. Uncertainties surrounding tax regulations governing property in the beginning of 2015 have also added to the weak sentiment. The growth of the Residential Property Price Index (RRPI) in 3Q 2015 decelerated, achieving 5.46% y-o-y as compared to 5.95% in 2Q On a quarterly basis, growth decelerated from 1.38% q-o-q in 2Q 2015 to 0.99% in 3Q Bank Indonesia predicts the trend to persist into 1H 2016 with rising prices of building materials, higher wages and more expensive fuel charges being the main determinants of rising residential property prices. The country s persistent economic slowdown had softened demand in the residential property market in 2015 as the preliminary RRPI for 4Q 2015 expanded only 0.40% q-o-q from 3Q The Commercial Property Price Survey results for 3Q 2015 showed a similar weakening trend for the commercial real estate prices in the regions surveyed (namely Greater Jakarta, Banten, Bandung and Makassar). Commercial property prices had weakened to 0.6% q-o-q, or 26.02% y-o-y, as compared to the previous quarter of 1.69% q-o-q, or 32.31% y-o-y. There are also new regulations from Bank Indonesia requiring the use of rupiah in all property transactions within Indonesia. This ruling had forced some 19 prime office buildings in Jakarta s central business district (CBD) to convert their U.S. dollar pricing to rupiah pricing, creating a 35.0% q-o-q increase in local currency average rental rate per metre square per month. Existing construction work in the country includes the International Financial Centre Jakarta Tower Two. Developed by Singapore s Keppel Land, the project entered its final phase in September and is set to be completed in 1Q The 48-storey building will offer some 50,200m 2 of office space upon completion. The tower is one of 12 office projects under way in the CBD as of

5 REPORT LABOUR PRICES SELECTED OCCUPATIONS UNIT AVERAGE LABOUR RATE IDR ( 000) 1Q Q Q Q 2015 p General Worker day 100, , , ,000 Carpenter (General) day 125, , , ,000 Tiler m 2 35,000 35,000 35,000 45,000 Concretor m 3 35,000 35,000 35,000 45,000 Steel Bar Worker kg 1,500 1,500 1,500 1,750 Formworker m 2 60,000 60,000 60,000 67,500 Bricklayer m 2 23,000 23,000 23,000 27,500 Plasterer m 2 32,000 32,000 32,000 37,500 Painter m 2 20,000 20,000 20,000 27,500 Data Glazer Source: London Metal Exchange (LME) m 2 175, , , ,000 Plumber day 150, , , ,000 Electrician day 150, , , ,000 Data Source: Public Works Department Indonesia (Jakarta); Market sources p: preliminary CONSTRUCTION MATERIAL PRICES BUILDING MATERIALS UNIT AVERAGE SUPPLY RATE (IDR 000) 1Q Q Q Q 2015 p Concreting Sand m 3 200, , , ,000 Stone Aggregate (20mm) m 3 210, , , ,000 Ordinary Portland Cement bag 67,500 67,500 67,500 67,500 Reinforced Concrete (Grade 30 MPA) m 3 1,025,000 1,025,000 1,025,000 1,025,000 Reinforced Concrete (Grade 40 MPA) m 3 1,150,000 1,150,000 1,150,000 1,150,000 High Tensile Steel Bars (10-40mm) kg 9,500 9,000 9,000 9,200 Mild Steel round bars (6-20mm) kg 9,500 9,000 9,000 9,200 Structural Steelwork (U-Beam, stanchion) tonne 10,350,000 10,350,000 10,350,000 10,350,000 Timber Sawn Formwork m 2 195, , , ,000 Clay Bricks (100mm thick brickwall) m 2 85,000 85,000 85,000 95,000 Data Source: Market Sources p: preliminary Exclusions: Plant and Equipment Transport Wastage Overheads and Profit Import Tax Value Added Tax Notes: All supply prices stated above are only applicable for building construction projects in Jakarta. Specific cost consultancy should be sought for your particular factual situation prior to utilising this information. CURRENCY EXCHANGE UNITS PER USD CURRENCY 1Q2015 2Q2015 3Q2015 4Q2015 p Indonesian Rupiah (IDR) 12,800 13,133 13,855 13,777 Data Source: Oanda p: preliminary 4

6 REPORT JAKARTA CONSTRUCTION PRICES Development Type OFFICE Cost PER CFA IDR ( 000) / m 2 Cost PER CFA USD / m 2 Good Quality, 10 to 25 storeys 6,670-7, Notes: Construction Floor Area (CFA) - The area of all building enclosed covered spaces measured to the outside face of external walls including covered basement and above ground car park areas. All Jakarta construction prices stated herein are as at 3rd Quarter 2015, and include a general allowance for foundation and external works. The price ranges herein are indicative and due consideration should be given to the different specification, size, location and nature of each project when utilising this information. The prices here may not fully reflect the extent of current market forces and tendering conditions. Exchange Rate Assumption: USD 1.00 = IDR 13,855 Good Quality, 26 to 40 storeys 7,830-10, Prestige, 10 to 25 storeys 9,650-11, Prestige, 26 to 40 storeys 11,070-13, HOTEL (Excluding FF&E) Three Star 10,410-11, Five Star 13,670-17, ,260 COMMERCIAL Retail 6,520-8, RESIDENTIAL Good Quality Condominium 6,430-7, Luxury Condominium 7,910-9, INDUSTRIAL Warehouse 4,650-5, Factory 5,130-6, CAR PARK Multi Storey 3,460-4, Basement, outside CBD 3,820-4, Basement, CBD 4,450-6, Exclusions: Land cost Legal and professional fees Development charges Authority fees Finance costs Loose furniture, fittings and works of art Tenancy work Site infrastructure work Diversion of existing services Resident site staff cost Models and prototypes Future cost escalation Import Tax Value Added Tax Disclaimer: While PT. Rider Levett Bucknall ( RLB ) has endeavoured to ensure the accuracy of the information and materials in this report (the Materials ), it does not warrant its accuracy, adequacy, completeness or reasonableness and expressly disclaims liability for any errors in, or omissions therefrom. RLB shall not be liable for any damage, loss or expense whatsoever arising out of or in connection with the use or reliance on the Materials. The Materials are provided for general information only. Professional advice should be obtained for your particular factual situation before making any decision. The Materials may not, in any medium, be reproduced, published, adapted, altered or otherwise used in whole or in part in any manner without the prior written consent of RLB. For enquiries, please contact: PT. Rider Levett Bucknall Jl. Jend. Surdirman Kav Sampoerna Strategic Square South Tower, Level 19, Jakarta 12930, Indonesia Tel: Fax: rlb@id.rlb.com Website: Cover: City Skyline of Jakarta in the day 5

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