Big cities such as Jakarta tend to have more buildings and space to let than there are prospective business tenants. New buildings are being erected, and yet more will be built.
I remember asking a senior corporate banker, a few years ago now, why new malls, high rise buildings and fancy apartments continued being built despite the bearish economy. This man, now one of the vice-presidents with the country's largest bank, answered: it must have been due to double counting, or miscalculating of some sort.
I believe it is more than just some kind of entrepreneurial error. It is quite the contrary.
Though not immediately perceivable, the answer lies closely related with monetary-policy expansionism. By this I mean that, rather than only serving as one of the consequences, the property sector is also an important part of the mechanism. Why is such the case?
Property is a business sector whose characteristics are apt for that very purpose, an area where state of the art technologies, latest architectural frenzies, and ego-boosting personal expressions can collaborate with as most outrageous extravagance as one can dare imagine.
In terms of resource requirements, the sector is intensive. Building a decent apartment, for instance, is usually time-consuming; no building tall enough can be erected within months.
What’s more, there is no fixed valuation standard for pricing buildings, especially when a few elements hinging upon subjective tastes can shield the originators away from accounting or auditing scrutiny. Not to mention that the eventual products are durables. They are legally certified, liquid, and collateralizable.
If actual sales turn out to be poor, it will only be known in some distant future. And since most high rises are built to fail anyway, who really cares?
I remember asking a senior corporate banker, a few years ago now, why new malls, high rise buildings and fancy apartments continued being built despite the bearish economy. This man, now one of the vice-presidents with the country's largest bank, answered: it must have been due to double counting, or miscalculating of some sort.
I believe it is more than just some kind of entrepreneurial error. It is quite the contrary.
Though not immediately perceivable, the answer lies closely related with monetary-policy expansionism. By this I mean that, rather than only serving as one of the consequences, the property sector is also an important part of the mechanism. Why is such the case?
Property is a business sector whose characteristics are apt for that very purpose, an area where state of the art technologies, latest architectural frenzies, and ego-boosting personal expressions can collaborate with as most outrageous extravagance as one can dare imagine.
In terms of resource requirements, the sector is intensive. Building a decent apartment, for instance, is usually time-consuming; no building tall enough can be erected within months.
What’s more, there is no fixed valuation standard for pricing buildings, especially when a few elements hinging upon subjective tastes can shield the originators away from accounting or auditing scrutiny. Not to mention that the eventual products are durables. They are legally certified, liquid, and collateralizable.
If actual sales turn out to be poor, it will only be known in some distant future. And since most high rises are built to fail anyway, who really cares?
