Real Estate

Exchange rate and interest rate risk, which is important in investing

2015/09/26

マンション

Is it true that an apartment is an asset if you buy it and an expense if you rent it?

I've been living in an apartment in Kuningan for a number of years now, and for the past few years, the landlord has always told me to raise the price when it comes time to renew my lease, but when I renewed my lease last month, he didn't say anything, so I automatically kept the price unchanged.

Perhaps this is a sign that the supply of apartments is starting to dwindle due to the recent economic downturn.

Even though the salaries of Indonesians working in the city center of Jakarta have skyrocketed, it seems that Indonesians who rent and live in apartments are only fairly well paid, and they don't understand that Japanese people pay high monthly rent to live in apartments.

  • Why would you pay so much money to live in an apartment?
  • I'd rather buy an apartment with a mortgage than pay for it.

Well, I'm told like this, but it's none of his business.

  • If you buy it, it's an asset, but if you borrow it, it's just an expense and then it's gone.

I think this makes good sense, but behind these words, I can see the following feelings.

  • If you buy it, it's your asset, so you don't have to pay rent, and if you sell it when it goes up in value, it's twice as tasty, so it's ridiculous to pay high rent every month to live there.

I haven't taken any statistics, but I think most of the Indonesians around me who work in offices would agree with him, wouldn't they?

The purpose of buying real estate has two aspects, "living by yourself" and "investment", but the idea of the Indonesians who advise me to "buy it because it's a waste of money" is to "buy a new property after a few years when the price goes up while living by yourself".

Buy a property that's easy to sell.

However, I think this is a precondition. I won't argue with them because it's too much trouble, but...

  1. The apartment can be sold at any time.
  2. The value of the apartment continues to rise.
  3. There are no fixed costs for the apartment (even small ones)

I had a hard time selling my house when I moved from Bali to Jakarta, so the risk of holding on to real estate is heavy as I don't know when I will leave Jakarta.

Moreover, a real estate takes time costs and physical costs in addition to the monetary costs taken at the time of sale and fixed costs, such as management costs, for every one even if it lives and does not live.

Therefore, when buying real estate, it is said that "Buy a housing which is easy to sell", and naturally, a housing which is easy to sell is necessarily expensive.

There is a difficulty of real estate purchase around here, and anyway, it is the reason why it is called "buy after seeing a lot".

Even though prices are still very high, there is still room for price increases in the long run, given the potential of the Indonesian economy, but the interest rate on bank time deposits is too high as a comparative investment destination.

With a one-month term deposit maturing at 7.75% per annum, I don't feel the benefits of investing in real estate are that great.

However, it is not safe to deposit your money in a bank, and since this is Indonesia, there is no guarantee that the Indonesian government will pay off your money in case of bank failure.

In fact, the brokerage company (Sarijaya) that I opened an account with 6 years ago went bankrupt and the amount of my account became about 40 juta ojan.

In terms of living on your own, if you buy an apartment, you can freely exchange interiors and have fun.

However, since there is a limit to what can be done in an apartment, even if it is a detached house, it may not be as much of a merit as it gets after taking these risks.

So, when people living in Japan ask me about investment in Indonesia, I usually answer like this.

  1. If it's rupiah money (money earned on a rupiah basis), the risk of buying property is high.
  2. You may be able to buy some properties at a discount if you have dollar funds (money earned in dollar terms).
  3. Time deposit interest fluctuates, so if the policy rate goes down, real estate will yield better.
  4. It is too high of an exchange risk to make a rupiah time deposit until you change your foreign currency into rupiah.
  5. Mutual funds rather than stocks in Indonesia(Raksadana)

With the rupiah funds earned during the last few years' weak rupiah environment, it is a loss to buy real estate that tends to be priced ahead of currency fluctuations.

Also, mutual funds should be done with surplus funds. If you invest without thinking of a future payment plan, you will lose a lot of money by cashing out when you need to.

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