Is recovery building for the property sector?<\/p>\n
By David Eyerly<\/p>\n
JAKARTA (JP): The country's property sector is, according to
\nthe experts, showing signs of recovery -- or so they have been
\nsaying for most of the year.<\/p>\n
On Feb. 3 The Jakarta Post quoted property consultant Procon
\nIndah\/Jones Lang LaSalle as saying the ailing property sector in
\nthe capital is expected to recover gradually this year, with the
\nretail market leading the process.<\/p>\n
On April 27 in the Post, property developer Ciputra offered
\nhis view of the matter, saying the property sector, particularly
\nhousing, would recover to precrisis levels in 2001 as sales in
\n2000 were expected to double from 1999.<\/p>\n
Procon Indah\/Jones Lang LaSalle had more to say on May 29,
\nasserting the property market in Jakarta was marked by signs of
\nrecovery in the first quarter, and further growth was expected.<\/p>\n
The property consultant had much to say for the second quarter
\nactivities, pointing to a net take-up across the board in the
\nsector.<\/p>\n
It was the same story for the third quarter of the year.<\/p>\n
Property consultant PT PricewaterhouseCoopers (PwC) declared
\nthe property sector had displayed signs of improvement. But a
\ncaveat was added.<\/p>\n
\"Although there were signs of improvement especially since
\n1998, unless we see some new construction activity we cannot say
\nthat a sustained recovery is underway,\" it said.<\/p>\n
\"Recovery in the property sector depends to a certain extent
\non how the government deals with the current political, economic,
\nsocial and security problems in the country.\"<\/p>\n
This phrase, in one form or another, is almost guaranteed to
\nbe the first thing one hears from a property consultant after
\nthey assert the property sector is showing signs of recovery.<\/p>\n
Even the most casual observer of Indonesian affairs will tell
\nyou that if this is the case, the property sector is not likely
\nto recover anytime soon, with the government doing very little to
\nresolve these problems.<\/p>\n
Retail lead<\/p>\n
One thing the experts seem to agree on, besides that the
\nproperty sector is recovering but not yet recovered, is that this
\nseemingly interminable process is being led by the retail sector.<\/p>\n
As Mina Ondang of Procon Indah\/Jones Lang LaSalle said way
\nback in February: \"The faster turn around of the retail sector is
\nmainly caused by the fact that the retail business, especially
\nhypermarkets, has been growing steadily despite the crisis
\nbecause people cannot help but keep on buying their daily needs
\nfrom these stores.\"<\/p>\n
Can a recovery in the retail sector then be used to herald an
\noverall recovery of the property sector, given that people cannot
\nhelp but continue to purchase from stores the things they need to
\nsurvive?<\/p>\n
According to PwC, an improved retail sector must be given a
\ncloser look to see whether it does indeed signify an overall
\nrecovery.<\/p>\n
Jay Smith, senior manager of the group, said: \"If GDP growth
\nhas some element of foreign investment, it is good for the
\nproperty sector. If GDP growth is driven only by consumer
\nspending, then it is only good for the retail sector.\"<\/p>\n
Or, as PwC noted in its quarterly property publication,
\nJakarta Property Trends: \"True recovery can only take place when
\nrentals, prices and occupancy rates show substantial and
\nprolonged improvement. This will then justify new development
\nactivity and construction projects will herald the end of the
\nrecession.\"<\/p>\n
Whether it is the vanguard of a property sector recovery or
\nsimply the result of increased consumer spending, nothing more
\nand nothing less, the retail sector has shown much promise over
\nthe year. Procon Indah said in February, looking back at 1999 and
\nahead for 2000, increased demand for retail space meant an
\nincrease in occupancy levels, up to 88.2 percent by the end of
\n1999 from about 80 percent in 1998.<\/p>\n
The company saw these occupancy levels continuing to rise over
\n2000 to above 90 percent, with few new retail spaces opening
\nduring the year, mainly refurbished shopping centers that were
\nburned in the May 1998 riots.<\/p>\n
Did these rosy predictions come to pass? According to the PwC
\nproperty group, they did indeed. The year saw the reopening of
\nsome markets (Slipi Jaya Plaza, Ratu Plaza, part of Duta Merlin
\nand the Makro retail warehouse.) The average occupancy of retail
\nspaces in Jakarta was put at 97 percent by the group, with take-
\nup for the year of at least 50,000 square meters.<\/p>\n
The property group sees the possibility of occupancy
\nincreasing to 99 percent next year, with limited new space
\nopening because of a lack of financing for new projects. With
\nincreasing demand and no new supply, rents, which went up some
\nover 1999, should continue to rise, particularly with most five-
\nyear leases in prime shopping centers in and near the Central
\nBusiness District up for renewal.<\/p>\n
Office space<\/p>\n
The office sector has seen some signs of life since the crisis
\nhit and businesses packed up office and split town, leaving whole
\noffice buildings virtually deserted, the modern equivalent of the
\nOld West ghost town; from boom to bust with a bullet.<\/p>\n
Occupancy rates bottomed out at 72 percent in the fourth
\nquarter of 1999, from 91 percent in 1997 when businesses still
\nbelieved there was gold in them thar hills.<\/p>\n
There has been some positive movement since. Property services
\ncompany Koll IPAC put the occupancy rate in the Central Business
\nDistrict at 78 percent at the end of August this year, a 5
\npercent increase from the beginning of the year.<\/p>\n
The Central Business District, or Golden Triangle, is
\ndelineated by Jl. Thamrin to Jl. Sudirman to the west, Jl. Gatot
\nSubroto to the south and Jl. Rasuna Said to the east. Buildings
\nin Mega Kuningan and along Jl. Imam Bonjol are also included for
\nthe sake of surveys of the area.<\/p>\n
And PwC, in its Jakarta Property Trends, has the occupancy
\nrate for all of Jakarta at 76 percent. Most property experts
\nagree that a major contributor to these positive signs is demand
\nfor office space by companies in the IT, insurance and consumer
\ngoods sectors.<\/p>\n
If you are in the market for some office space, there is good
\nnews on the rent. Most buildings now rent in rupiah or U.S.
\ndollars with a fixed exchange rate, so you may be able to pick up
\nsome nice office space on the cheap. However, with very little
\nnew office space expected to enter the market over the next
\ncouple of years, occupancy rates are expected to continue their
\nupward creep, which will likely lead to an upward trend in rents.<\/p>\n
Recovery?<\/p>\n
The question, then, is where does the property sector go from
\nhere? Will it be another year of signs of recovery but not really
\na recovery? Will the sector take a turn for the worse, influenced
\nby outside factors such as the country's political and security
\nsituations? Will the sector reach the promised land of recovery,
\nwith cranes once again dotting the skyline and wolf whistles
\nringing from construction workers at every corner?<\/p>\n
Much like the statements that pour out of President
\nAbdurrahman Wahid's mouth, who knows what's coming next. But
\nthere are some things one can look at for guidance.<\/p>\n
For example, what will the Indonesian Bank Restructuring
\nAgency (IBRA) do with all the property under its control. For the
\nproperty sector to recover, foreign investment is needed. And
\nforeign investors are interested in the property controlled by
\nthe agency.<\/p>\n
But the two parties seem to have trouble coming together. IBRA
\ndoesn't want to sell because it doesn't think it can get an
\noptimal price, and thinks if it continues to hold onto the
\nproperty the economy will pick up and then they can get more
\nmoney from the sale. Well, good luck with that plan.<\/p>\n
And foreign investors want to buy the property on the cheap so
\nthey can optimize their profits, which is the goal of all
\ninvestors everywhere. So will the two sides get together and
\nstart moving these IBRA assets into the private sector, where
\nthey can generate money and help spark some economic growth?<\/p>\n
Well, IBRA did sell Wisma BCA. Discussing this sale, Jay Smith
\nsaid: \"This is good news, a sign of going in the right direction.
\nYou can't call one sale a benchmark, but it's a start. Foreign
\ninvestors monitor the Indonesian market, and they are driven by
\nearning high returns so they want a low sale price.\"<\/p>\n
Then there is the question of the rule of law and the
\nintegrity of the courts in enforcing the law that has some
\ninvestors hesitant. Nobody wants to plunk down a large piece of
\nchange for that oil palm plantation, only to have the local
\nresidents then lay claim to the land.<\/p>\n
And then you have city councillors in Jakarta questioning the
\nlicense obtained by the Carrefour hypermarket chain from the city
\nadministration. It makes investors nervous when the councillors
\ncome out and wonder if the license is valid, if their outlets are
\nlegal or if they should be closed down.<\/p>\n
Then, when the councillors tell the papers they plan an
\n\"impromptu visit\" to one of the outlets, it is no surprise, given
\nthe country's track record, that one imagines they will be
\nvisiting not to ensure the hypermarket is not unfairly crowding
\nout smaller retailers in the city, but rather they are coming
\nwith hands out looking for a piece of the action.<\/p>\n
Fair or not, that is the assumption many people will jump to,
\nand this does nothing to encourage investors. They need to know
\nthe law is king, and they will not be constantly squeezed from
\nall sides. Will this happen?<\/p>\n
It is difficult to say, just as it is difficult to predict
\nwhether the political situation and the security concerns in the
\ncountry will be addressed to the point where investors will be
\nconfident about putting their money into the country. And where
\nis the comfort zone for investors? At what point do political
\nturmoil and security scares pass from being merely worrisome to
\nactively keeping investors out of the market?<\/p>\n
Given all of these questions without answers, the outlook for
\nthe property sector remains vague. It is showing signs of
\nrecovery, but it has not yet reached recovery. True recovery to
\nsome extent depends on the country's political and security
\nsituation, the certainty of law for investors and any number of
\nother factors. Or, for the sake of brevity, more of the same.<\/p>",
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