JP Morgan - Indonesia Real Estate: Following the drivers: Analyzing Greater Jakarta property

· Jakarta property - medium-term drivers: In the past three years, the number of people employed in the Jakarta areas has been greater than the growth of the population (6.3% CAGR vs. 2.6% CAGR). We also see rising GDP per capita in Jakarta and Greater Jakarta, and are starting to see signs of manufacturing exports recovery. All of these should point to better property demand fundamentals in the capital area.

· Follow the commuters – Bekasi, Depok, Serpong, Bogor and Tangerang are population nodes for the city: The Greater Jakarta market is 1.6x larger than the Jakarta market. The average growth of commute from the five nodes of Bekasi, Depok, Serpong, Bogor and Tangerang within Greater Jakarta is around 11-16% CAGR (grown more than 10x in the last 25 years). Following the trend of urbanization, increase in population, and increase in manufacturing activity, we are positive on residential demand for the Greater Jakarta area, and think companies with a presence in these areas stand to gain over the medium term.

· Who are the beneficiaries? Property companies that we cover (CTRA, LPKR, and ELTY) should benefit from such structural changes in the property market as they have township developments in the Greater Jakarta area. With the recent launch of Summarecon Bekasi, Summarecon Agung has the benefit of catering to both Serpong and Bekasi markets (where industrial properties are mostly located).

· Medium-term catalysts: transportation connections and power plant projects: With expected infrastructure improvements (via the proposal to apply the “eminent domain” principle) and completion of power plant projects, we expect rising demand for industrial/manufacturing in Greater Jakarta areas. We argue that toll road connections would be a critical aspect identifying future residential clusters, which could develop into property opportunities.