Residential Real estate property - Essay Example

Residential real e property Residential Real e property I. Executive summary This residential real e report is mainly focused on a cooperate business in Jakarta area. The author write about the business activity in condominiums business in the region as a whole. First, the author analyzes the market condition and current trends that are happening in Jakarta. The analysis is based on key trends, market analysis that consist of market segmentation, market profitability, and sales analysis, which consists of supply and demand. Furthermore, the author uses discounted cash flow analysis and direct capitalization method to forecast 3-4 years of condominiums business in Jakarta. The result of the data shows that recently, the GDP of Indonesia has gone up, and the property growth is 7%. In the meantime, majority of lower class people have upgraded into middle class levels with increase in wages. Thus, it is an implication that even if the price of the condominiums have gone up, people in Jakarta can still purchase property. This data supports the phenomena that most investors have built more than twenty condominium building in the area, which have one hundred thousand condominium units. It is because they can receive high returns in a short time. The authors believes that this condition will keep going until the next 4 years, and the investors should be aware about the uncertainty after the fourth year. People could realize that they don’t have to live in Jakarta; they can live outside the region, and commute to the main centers for working. However, this will negatively impact the demand of condominiums in Jakarta. Having said that, investors can perform two actions that after their project is done this year, then they should start thinking of selling it in the next three years, but if their condominium project is finished 3 years later, then it is better for them to rent it, and wait until the price and demand go up. Financial Analysis In the first quarter of 2013, the appreciation of the property was 7% in Jakarta, which the author believes that it will stay the same until the next four years. The property growth of Jakarta is in the bubble right now. He states, “My financial analysis that is based on discounted cash flow and direct capitalization, I forecast that in the next 4 years the appreciation will stay the same and in the third year, the property value of one condominium will be around $ 482,765 USD - $ 495,363.” If the condominiums investors decide to sell property, they will gain $ 577580.81 USD net sale price. Thus, investors need to sell their condominiums at maximum in the next 3 years. According to the above financial analysis, it is reasonable to take 7% appreciation for the next four years because from a rational perspective, more lower class people will upgrade to middle class. When they receive their pay role for the first time they receive their money, these group of people would want to purchase a place to live, and they would not think for the property value and others’ perspectives on behalf of the property value. Even though the price is going up, the GDP will support it. Thus, from the author’s perspectives, the demand is still high until the third year. However, after the above analysis, the author believes that Jakarta residential real estate price could go down when people start to realize that the price is not worth the property value. There is a high possibility that more people will start to think to live outside Jakarta, and only commute to Jakarta to go to their offices. When this happens, the growth will go down significantly to the normal level around 2.04%, and the demand level will also decrease. At this circumstance, condominium investors need to reduce their prices, so it could attract people to purchase the property. Based on this financial analysis, property investors can do a couple of things to gain huge profits. First, they can start selling their property soon, at a maximum of the next 3 years in order to get higher returns, and can sell it easily when the demand is still high. Second, if they keep their property too long until the next 5 years, there is a possibility that the demand will be very low, and investors will find a hard time to sell the condominiums. It is preferable for them to rent it to individuals for a longer time until the demand goes up, and the prices will increase as well. Even though the author has given his views concerning the above, this may just be a simple appraisal of the condominium’s value. Just to add on the analysis to make it more real, as a seller, an investor should put in mind that a low appraisal or value prediction of a property, if accurate, means he will have to lessen his property’s price to ease its sell. Lenders won’t accept loans for more than the worth of a property or a home. In addition, holding out for an all-fund buyer who is not in need of an appraisal as a requirement of completing the contract is unlikely to net him a higher selling price. In simple terms, no one wants to overpay for a property, no matter the time it has been in existence. Land certificate examination at the Land Office The Land deed official will be in charge of the land certificate examination. The land book is available at the land office. The land certificate process usually takes hours to be completed for each business day. There is a possibility that the process will be delayed because the land book is unavailable, or misplaced. It could take few days to obtain information from the land office. Therefore, if this happens, then it will take longer. The examination is basically involved in the local city planning office at the local government office. They want to know clearly the purpose of using the land, or building; whether it is for residence, industry, or for green belt. After the examination is done, usually there is a mode made on the certificate stating, “Has been examined and pursuant to Government Regulation No. 13 of 2010 regarding Types and Tarrifs of State Non Tax Income Applicable in National Land Offices. Dated January 22, 2010” (IFC, 2014). Seller pays the transfer tax at the bank The seller must pay transfer tax before the transfer is done. 5% is calculated from the sale, and if the value is higher than the sales value, then the sale will be used. On the other hand, if the sale value is higher that sales value of the tax object, then they will use sale value. The transfer tax needs to be paid to the bank that is appointed by the Ministry of Finance. This is stated in this clause, “Tax to the local government is paid at the Local Government Bank (Bank Badan Usaha Milik Daerah) and/or other private commercial bank (Article 4.2 of Law No. 7/1983, amended by Law No. 10/1994 and Law 17/2000 concerning Income Tax) and Parts 2.1 and 5.1 of the Director General of Taxation Circular No. SE-04/P.J.33/1996 dated August 26, 1996” (IFC, 2014). Buyer pays tax on acquisition of the land and building Buyers should pay the Tax on Acquisition of Land and Building (BPHTB) at a value of 5% of the value of transfer, and they need to pay the outstanding amount to the bank that is appointed by the state treasury to accept tax payments. Execution of the sale and purchase of the Land Deed by the PPAT official The execution of the sale and purchase is made before the land officials that will be appointed by the National Land Office (PPAT) or a local head of a district (Camat PPAT). Then after they have passed procedures 3, and 4, usually, the payments will be made by the notary three days before execution of the property. Registration of the Land Deed at the local Land Office under the name of a buyer The land certificate will record registration of the Land Deed at the local land office. The customer’s name will be written on the certificate. They give a grace period of 7 days from the signing date of the sales, and purchase of the Land Deed. The notary will help to submit supporting documents to the Land Office. However, according to Article 40 sub 1 of Government Regulation No. 24/1997 concerning the Land Registration, they only give 5 days time limit to submit all of the required documents. The previous land owners will be crossed, and substituted with the new ones. The new purchaser’s name will be on the certificate, stamped and signed. Read More