Property analyst warns of tougher times<\/p>\n
By Stevie Emilia<\/p>\n
JAKARTA (JP): Panangian Simanungkalit predicted as long ago as
\n1991 that the local property sector would collapse. His
\nprediction, which went largely ignored, has proven correct this
\nyear.<\/p>\n
He was off on the timing, though, forecasting it would happen
\nin 2001.<\/p>\n
A property analyst by profession, 37-year-old Panangian says a
\ncollapse was bound to happen on the back of the huge glut and
\nmounting number of offshore debts of developers.<\/p>\n
Despite extensive media publicity given to his gloomy
\nprediction, it was disregarded by the government and even more so
\nby the industry, which went ahead at full steam in building more
\nproperty and taking on greater loans.<\/p>\n
\"My prediction happened sooner than I had thought. It was
\ntriggered by the plunge in the rupiah exchange rate and soaring
\nlending rates,\" says Panangian, a staff lecturer at the Center
\nfor Indonesian Property Studies and owner of PT Pro Realtor 2001.<\/p>\n
The currency crisis, in which the rupiah has lost 35 percent
\nin value against the U.S. dollar since July, proved too much for
\nmost developers, he says. The property sector is highly sensitive
\nto interest rate fluctuations, he adds.<\/p>\n
Due to the long-range nature of the business, property
\nprojects should really be financed by long-term funds, he says.
\nBut the construction boom in Indonesia was chiefly financed by
\nmoney raised from time deposits and foreign loans with short
\nmaturity.<\/p>\n
\"Many developers -- overwhelmingly obsessed with building more
\nand more projects -- have been using short-term funds to finance
\nlong-term projects,\" says Panangian, who is a member of the
\nIndonesian Society of Appraisers.<\/p>\n
These same developers are swamped by problems repaying their
\nloans because the rupiah value of the debts has soared, he says.<\/p>\n
As if that wasn't enough, developers cannot take out more
\nloans -- an old business practice in Indonesia is to borrow from
\none bank to pay off a debt at another -- because of tight
\nliquidity and soaring interest rates, he says.<\/p>\n
Large, medium and small developers have had to cancel or even
\ncease their projects. \"Some 40 percent of the 2,500 developers
\nwill soon be out of business,\" Panangian predicts.<\/p>\n
The going interest rates now average 35 percent for property
\nloans, and 30 percent for mortgages, making it uneconomical for
\nany developer to continue with their projects.<\/p>\n
There are also huge sums of money tied to neglected land which
\nthey bought during the frenzied rush in the booming years. \"About
\nRp 16.8 trillion is tied to neglected land in the greater Jakarta
\narea,\" Panangian says.<\/p>\n
Born in Tarutung, a town in North Sumatra, Panangian now
\ndivides his time between teaching, running four companies that he
\nowns and family. The holder of a 1996 Master's degree from the
\nUniversity of Technology Malaysia, Panangian is the proud father
\nof a son and a daughter.<\/p>\n
He stands by his old assertion that the collapse could have
\nbeen avoided if developers had built the type of houses that were
\nin demand -- small and medium homes, instead of concentrating on
\nluxury houses.<\/p>\n
Jakarta needs 70,000 new houses -- mostly low and medium size
\n-- each year. Developers build 25,000 units, but most are luxury
\nhouses for which there is little demand, he says.<\/p>\n
\"There's a mismatch between what the market wants and what the
\nindustry provides,\" he says, adding that there are now some
\n35,000 unsold new houses.<\/p>\n
\"Most people living in Jakarta, with a monthly income below Rp
\n900,000, could afford houses that cost not more than Rp 30
\nmillion,\" he adds.<\/p>\n
Land prices have been slashed by 30 to 40 percent because of
\nthe crisis, he says, noting that many properties close to the
\nstrategic business district in Jakarta have been put up for sale.<\/p>\n
House prices have also been cut, but even fewer people are
\nbuying, he says.<\/p>\n
This is the right time to buy for anyone with money to spare
\nbecause property is going at bargain prices, Panangian says. \"But
\nbe careful because there are always people who want to take
\nadvantage of the situation.\"<\/p>\n
He says that during his 12 years in the profession, he has
\nnever seen the property sector as badly hit as now. \"I don't
\nthink the property sector will recover next year.\"<\/p>\n
A member of the International Real Estate Institute based in
\nScottsdale, Arizona, Panangian believes not all the blame should
\nbe laid on developers.<\/p>\n
The Indonesian economy is highly susceptible to global and
\nregional economic fluctuations, including the currency contagion
\nthat broke out in Southeast Asia, he says.<\/p>\n
\"We can't predict when the situation will return to normal.
\nIt's still a question mark for us,\" Panangian says.<\/p>",
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