Is there a new property boom?<\/p>\n
Lini Djafar
\nDirector,
\nHead of Research &
\nConsultancy
\nPT. Procon Indah
\nJakarta<\/p>\n
Tower cranes are swinging, concrete mixers are churning out
\nconcrete and Jakarta's roads are once again dirty from the
\nclearing of new development sites. Though without doubt the last
\n18 months has witnessed increasing activities in the property
\nsector, with 15,000 new condominium or strata-title apartment
\nunits offered for sale "off-the-plan"(equivalent to over 70 new
\ntower blocks); several retail shopping malls opening their doors
\nfor business; and even certain developments, which were put on-
\nhold during the crisis, re-launched, does all this add up to
\nclear signs of economic recovery and the early indications of a
\nproperty boom?<\/p>\n
Selling like hotcakes<\/p>\n
To judge from the strong market response to all these
\nprojects, you might say yes. Since the launch of the first
\ncondominium project on a pre-sales basis in the 2nd quarter of
\n2002, approximately 73% of these units have been pre-committed,
\nand of the 2,700 offered on a pre-sales basis this year, 89% have
\nalso been sold. In real terms, it is estimated that
\nconservatively some Rp 10 trillion has been transacted in this
\nsector since mid 2002 with 70% of these buyers being investors
\nnot end users.<\/p>\n
Certainly for the condominium sector, the existence of pent-up
\ndemand and strong liquidity, especially that of the middle-upper
\nsegment, have been the two main drivers of transaction activity
\nin the market. Coupled with the recent low interest rates,
\nproperty has increasingly become one of the attractive investment
\noptions for investors, perhaps explaining the fact that full cash
\ninstallments have been the most preferred payment method for
\ncondominium purchasers.<\/p>\n
Retail shopping malls are another area to have experienced
\nimpressive activity during 2003. With Indonesia's economic growth
\nmainly driven by private consumption, the retail sector was the
\nfirst area of the property market to show recovery and since its
\nreturn to positive demand take up in 1999 the retail sector has
\nclimbed back to 80% of its pre-crisis level (in terms of prices
\nand occupancy). Annual demand in 2002 logged a record figure of
\nsome 173,000 square meters (sq.m) and with new supply following
\nat a lower pace, overall occupancy and rentals correspondingly
\nimproved.<\/p>\n
With only limited availability of development loans to the
\nproperty sector following the economic crisis, recent retail
\nsector supply has been dominated by strata-title retail centers,
\nwhich are effectively self-financing. Of the 770,000 sq.m of
\nretail space projected to enter the market in the next three
\nyears, about 65% of this supply will be strata-title centers.<\/p>\n
With the property sector traditionally being a barometer of
\nthe overall health of the economy, in the absence of the return
\nof foreign investment confidence in Indonesia there has been only
\nvery slow movement within those property sectors relying on
\nforeign investment, such as offices, rental apartments, and
\nindustrial land. So with no new factories, many multi-national
\ncompany office tenants on the "wait-and-see" list, and no net
\ninflux of new expatriates requiring housing, these 3 sectors are
\nstill on the "starting blocks" of recovery. In keeping with the
\ncountry's driver of economic recovery, property activities have
\noccurred mainly in those sectors targeting the domestic market,
\nsuch as condominiums and retail.<\/p>\n
So what's the outlook?<\/p>\n
Despite strong demand in the condominium market, sales prices
\nhave remained relatively stable, with a price increment in Rupiah
\nterms over the last 12 months of only 3.6%. This implies the high
\nsensitivity of the market to pricing, as investment remains the
\nmain reason for purchase in this sector, with buyers directly
\ncomparing property investment with other investment
\nopportunities. What has also been identified, is that demand is
\nnow growing at a slower pace than supply. This potential
\n"scissors effect" should be an early warning to developers on the
\nincreasing competition and the potential for condominium buyers
\nto migrate to alternative investment products. Demand and
\npotential for project success undoubtedly remains, however the
\nright quality product at "value-for-money" pricing will be the
\nkey for continued success in this sector.<\/p>\n
Similarly, the high levels of future supply of strata-title
\nretail centers may temporarily hold back the growth in the
\naverage occupancy levels of the retail market. This does not mean
\nthat the retail market has reached its peak yet, and improvement
\nin both occupancy levels and rentals, even though at lower rates
\nof growth, are still anticipated. Strategically located shopping-
\nmall projects with a strong retail concept, and an attractive
\ntenancy mix -- including overseas retailers -- are yet to be seen
\nin Indonesia. The country still has high potential for success in
\nthe market in the coming 2-3 years, as their remains excess
\nconsumer capacity to support these centers.<\/p>\n
It is too early to conclude that the property market is
\nbooming again, as strong demand exists but only in certain
\nsectors and it has not been followed yet by any significant
\ngrowth in sales prices and rental rates. Whilst the market is
\nclearly already in recovery -- and some developers can sleep
\nsoundly at night in their condo units, and others can go shopping
\nwith confidence -- strong economic foundations underwritten by
\nrenewed foreign investor confidence, will remain crucial to push
\nthe growth of the overall property market, particularly the
\ncommercial sectors. So, perhaps, a "mini" boom can be
\nanticipated.<\/p>",
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