The dynamics of listed property companies in Indonesia

Publication Date20 December 2020
Date20 December 2020
AuthorThi Kim Nguyen,Muhammad Najib Razali
SubjectProperty management & built environment,Real estate & property,Property valuation & finance
The dynamics of listed property
companies in Indonesia
Thi Kim Nguyen
Western Sydney University, Parramatta, Australia and
Faculty of Economics and Business,
Hoa Sen University, Ho Chi Minh City, Vietnam, and
Muhammad Najib Razali
Faculty of Geoinformation and Real Estate,
Universiti Teknologi Malaysia, Johor Bahru, Malaysia
Purpose As an asset class, listed property companies (PCs) in the emerging Asian markets have
taken on increased significance in recent years. Investors have seen Indonesian real estate investment
trusts (REITs) being regulated to become a property investment vehicle in 2007. This sees
macro-environment in vestment in the Indonesian property market taki ng off to a higher level regionally.
In the background, Ind onesian listed PCs main tain as one of the major investment vehicle s for local and
international invest ors. It has also been the subject of i nvestment for REITs and property investment funds
in Indonesia. The purpose o f this paper is to assess the dyn amics of risk-adjuste d performances and
portfolio diversification benefitsof listed PCs in a mixed-asset portfolio context in Indonesia, from July 2006
to December 2018. The sub -periods of pre-global financial cri sis (GFC), GFC and post-GFC of listed PCs is
also assessed.
Design/methodology/approach Using monthly total returns, the risk-adjusted performance and
portfolio diversification benefits of listed PCs from July 2006 to December 2018 are assessed, with extended
efficient frontiers and asset allocation diagrams used to assess the role of listed PCs in a mixed-asset portfolio.
Sub-period analyses are conducted to assess the post-GFC recovery of listed PCs.
Findings Listed PCs delivered hig her returns but carrie d higher risks compared t o stocks before the
GFC, with bonds having bo th the lowest returns and risks. The impact of the GF C was highest for
Indonesian PCs compared to stocks, where properties did not deliver strong risk-adjusted
returns. Notwithsta nding the poor risk-adj usted performance, Ind onesian PCs had low corr elations with
stocks and bonds, sugge sting some level of dive rsification potent ial for stock and bond inv estors.
Stocks outperformed l isted PCs across the sub-periods and the f ull period. Over the post-GFC period, both
stocks and listed PCs rec overed from the crisis, wi th stocks turning arou nd stronger. This analys is
shows a prolonged reco vering and slow boun cing adjustment of lis ted PCs from the econo mic changes.
This research suggests selected listed PCs may be the outperformers, an d, a future contract as a hedge form
for listed PC to be implemented.
Research limitations/implications The use of the indices of Standard & Poors Indonesian
property total retur n (f or listed PCs) are as fol lows: MSCI Indonesia t otal return ( for stocks ),
Indonesiasten-yearbonds total return (for bonds) and Indonesias thre e-month bill total return ( for cash).
This is used to study the Indo nesian listed PCs and may have aggregatio n effects in its underperformance
and therefore drawing a n egative outcome. The re sults may reflect the comm on fact that the majority of
listed PCs in Indonesia a re property develope rs, which also sees unde rperformances in oth er emerging
country markets.
Practical implications Listed PCs have been unde r increasingly adjust ed and positively adapt ed
regulations from the In donesian Governme nt over the post-GFC pe riod. Therefore, in o rder to attract
interest from internat ional investors in pro perty investment in Ind onesia, listed PCs nee d stronger and
more efficiently adapted regulations to a competitive level of respective regulations in the
region and globally. Not withstanding the poo r performance in the tra nsitional stage, Indo nesian listed
PCs bring some diversifi cation benefits to local investors who are ab le to pick the outperformed invested
PCs at the right time. Of th e on-going concerns, in ternational inves tors have no restrict ions on holding
listed PCs in the Indonesi an stock market. This provides room f or improvement in business perform ance in
listed PCs as a result of r egional/global comp etition and internat ional management be ing involved. The
present study deliver s awareness to investo rs, researchers as wel l as policymakers on the I ndonesian
property market.
Originality/value This paper is the first published to present a country profile of significant property vehicles
(commercial property, listed PCs and REITs). It also presents empirical research analysis of the risk-adjusted
Received 1 June 2019
Revised 6 July 2019
10 August 2019
24 October 2019
Accepted 15 November 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
Dynamics of
listed PCs
JournalofProperty Investment&
Vol.38 No. 2, 2020
performance of listed PCs and its dynamic role in a local investorsperspective across the pre-GFC, GFC, post-GFC
periods. Given the significance of listed PCs in Asia, this research highlights more information for opportunities
and on-going property investment issues in Indonesia.
Keywords Indonesia, Dynamic performance, Asset allocation, Risk-adjusted returns,
Portfolio diversification, Listed PCs
Paper type Research paper
The largest economy in south-east Asia, Indonesia is also known as the worlds third most
populous democracy, the worlds largest archipelagic state and the worlds largest
Muslim-majority nation. The nations rich natural resources and minerals, the archipelagos
tropical weather and huge landbank have significantly supported its popular agricultural
products globally. Its natural resources, together with the islandscentral location between
India and the Orient, have made Indonesia attractive to foreign traders, rulers and investors,
both historically and recently. Consequently, it is not surprising to see that Indonesia
globally attracts abundant capital inflows in general and in particular, for property
investment. In return, the influence and importance of Indonesia to the region is significant.
Particularly during the GFC, Indonesia outperformed its regional neighbours and joined
China and India as the only G20 members posting growth.
The below list presents the social, economic and real estate profile of Indonesia. With a
population of over 262m (2018), this country is seen as strong and efficient in services and
industries (labour force of 47 and 21 per cent produced 45.9 and 40.3 per cent for services
and industrial, respectively). Indonesias annual economic growth edged up to 5.18 per cent
in the fourth quarter of 2018 from 5.17 per cent in the previous three-month period.
The expansion was mainly driven by private consumption while both capital investment
and government spending increased at a slower pace. For 2018 as a whole, the Indonesian
economy grew 5.17 per cent, compared to a 5.07 per cent expansion in 2017, marking the
fastest growth rate since 2013. GDP annual growth rate in Indonesia averaged 5.28 per cent
from 2000 until 2018, reaching an all-time high of 7.16 per cent in the fourth quarter of 2004
and a record low of 1.56 per cent in the fourth quarter of 2001.
Social, economic and real estate profile of Indonesia:
Population: 262.7m (July 2018 estimate)
Major cities: JAKARTA (capital) 10.517m; Bekasi 3.159m; Surabaya 2.903m; Bandung
2.538m; Medan 2.285m; Tangerang 2.222m (2018)
Urban population: 55.3 per cent of total population (2018)
Rate of urbanisation: 2.27 per cent annual rate of change (20152020 estimate)
Government: presidential republic
GDP: US$1.015 trillion (2017 estimate)
GDP growth: 5.1 per cent (2018)
GDP sectors: Services (45.9 per cent), industrial (40.3 per cent), agriculture (13.9 per cent)
(2017 estimate)
Labour force: 125m (2016 estimate) (services 47 per cent, agriculture 32 per cent,
industry 21 per cent)
Unemployment: 5.6 per cent (2017 estimate)
Global competitiveness: No. 41 (out of 137 countries)
Corruption perception: No. 37 (out of 180 countries)
Ease of doing business: No. 72 (out of 190 countries)
Sovereign credit rate: investment grade/stable outlook
Stock exchange: Jakarta (No. 25 globally; US$464.28bn market cap 2018)

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