Property stung by monetary woes<\/p>\n
Property has a dubious distinction as one of the first
\neconomic sectors to be badly battered by the currency crisis. The
\nJakarta Post reporters -- Budiman Moerdijat, Devi M. Asmarani,
\nDwi Atmanta, Edith Hartanto, IGN Oka Budhi Yogiswara and Stevie
\nEmilia -- look at the shell-shocked sector. Related stories
\nappear on Page 2, 3 and 9.<\/p>\n
JAKARTA (JP): Early this year, 31-year-old private company
\nemployee Bimo and his wife decided to buy a house where they
\ncould raise their newborn daughter.<\/p>\n
The couple was set to obtain a housing loan to pay for a
\nmedium-sized house in the Jakarta suburbs. Their plan seemed to
\nbe going smoothly -- with interviews set up with several banks --
\nuntil August.<\/p>\n
Their hopes were torn asunder. The rupiah's value has dropped
\nby over 35 percent against the U.S. dollar since July, causing
\nthe government to impose a tight money policy and credit crunch.
\nMoney became scarce and interest rates shot up almost overnight.<\/p>\n
They are faced now with a situation in which getting a loan
\nwould be unwise -- if not unaffordable -- and credit allocation
\nfor housing has been slashed.<\/p>\n
\"I'll have to forget about buying a house for while, because
\nthere is no way we could afford paying back the loan now,\" Bimo
\nsays.<\/p>\n
Many others share Bimo's bleak position, forced to postpone
\nthe best-laid plans as the crisis eats a big chunk out of their
\nincomes.<\/p>\n
Herman Tjahja, 28, has had to put off his marriage because
\nsoaring interest rates shattered his dream to buy a house in
\nBekasi, a township east of Jakarta.<\/p>\n
Herman was told before the crisis that he could buy the house
\nfor Rp 80 million (US$22,857), with a 21 percent interest rate.
\nThat translated into paying around Rp 1.6 million every month.<\/p>\n
The plan was dashed when the interest rate surged to 40
\npercent, raising the monthly payment to about Rp 2.8 million.<\/p>\n
\"That's crazy, I can't possibly afford it right now,\" he says.<\/p>\n
\"My salary is small and it does not look as if I will get a
\npay rise.\"<\/p>\n
What is preventing them from getting one of their most basic
\nneeds -- a roof over their heads?<\/p>\n
The answer is the skinning of the property sector.<\/p>\n
Since the devaluation of the Thai baht in July triggered
\ncontagious speculative attacks on currencies across the region,
\nthe property sector in Indonesia has become the nervous talk of
\nthe town.<\/p>\n
Simply put, it is an economic ulcer which has been well
\ncovered by many superficial stopgaps, but which has now become so
\nacute that it can no longer be concealed.<\/p>\n
The crisis has lifted the veil off the most recklessly managed
\nindustry in the Indonesian economy.<\/p>\n
Property analyst Panangian Simanungkalit can reel off a list
\nof the many problems plaguing the country's property sector.<\/p>\n
Top of his list is the speculative tendency of developers,
\nreflected in their irresponsible funding and investment
\nstructures.<\/p>\n
Developers are notorious for their reckless habit of borrowing
\nshort-term loans for long-term investments.<\/p>\n
Spending habits of the property sector in Indonesia, like in
\nThailand, can be compared to those of a grasping member of the
\nnouveau riche.<\/p>\n
\"Developers felt they had to fulfill their insatiable desires
\nby building more projects, not realizing the risky consequences,\"
\nPanangian says.<\/p>\n
When the loans, most of which are from foreign lenders, began
\nmaturing and increased by almost three times the previous value
\nbecause of the rupiah's drop against the dollar, the companies
\nbegan gasping for a breath of liquidity, which by now had become
\nscarce because of the credit crunch.<\/p>\n
Lavish spending, combined with the current monetary turmoil,
\nis fanning fears a property crash is lurking around the corner.<\/p>\n
\"A property crash is inevitable even in big countries such as
\nthe United States, Japan and Thailand,\" he says.<\/p>\n
He is careful to draw a distinction, believing the local
\nproperty market has collapsed but has not crashed.<\/p>\n
One of the indicators of a property crash is a nationwide free
\nfall in prices of properties by 40 percent or more, which has yet
\nto happen.<\/p>\n
Even so, there are cases of drastic cuts in property prices.<\/p>\n
In Jakarta, several houses and plots in the Bintaro suburb,
\nSouth Jakarta, are being offered for less than 50 percent of
\ntheir usual prices.<\/p>\n
At a recent home exhibition conducted by the Indonesian Real
\nEstate Association, many houses were up for sale at around 35
\npercent less.<\/p>\n
But the huge markdowns do not necessarily send consumers
\nrushing into the property sector.<\/p>\n
The rupiah slump caused inflation and forced people to tighten
\ntheir spending belts, while the credit crunch hiked lending rates
\nand made housing and property credits scarce.<\/p>\n
Senior marketing head at Bonavista Apartments, Jenny Jethnani,
\nadmits meeting sales targets has become tough.<\/p>\n
\"We used to sell about six to seven apartments a month before,
\nnow we can only sell two to three.\"<\/p>\n
Expatriates are the most frequent residents of apartments, and
\nJenny says the crisis has made foreigners reluctant to work in
\nthe country, thus slowing sales.<\/p>\n
Marketing manager of property brokerage Era Prima, Markus
\nSuryawan, says his business has been severely affected.<\/p>\n
\"We have a lot of customers who have put off transactions
\nbecause of the increasing interest rates.\"<\/p>\n
He reports 10 to 15 transactions are delayed each month, with
\nvalue between Rp 200 million and Rp 5 billion.<\/p>\n
Shop-houses have not been spared. According to Home Property
\nTrade owner and director Johan Bukit, sales of the units have
\ndropped by about 30 percent since the crisis began, from around
\nRp 10 billion a year.<\/p>\n
The only survival tactic is to sell the shop-houses below
\nmarket prices, he says. \"Now we negotiate on the spot, just like
\nan auction.\"<\/p>\n
Many of those who have bought property and are now making
\npayments find themselves economically overextended, as some
\nhousing loans are subject to floating interest rates after the
\nfirst year.<\/p>\n
Housewife Sarah says payments on her house, located in a plush
\nSouth Jakarta suburb, has swollen by an extra Rp 1.75 million to
\nabout Rp 6 million due to steep interest.<\/p>\n
The property business follows a determined cycle.<\/p>\n
At some point, developers invest excessively in property,
\nsporadically building mega projects. This will lead to a glut.<\/p>\n
Property consultant PT Procon Indah predicts the property
\nsector will suffer from lower demand growth next year, as
\nconsumer purchasing power continues to decline.<\/p>\n
Even property king Ciputra, owner of the Ciputra Group, admits
\nthe industry is beset by problems.<\/p>\n
\"Property... has cycles, and now it is facing an oversupply,\"
\nhe was quoted by Panji Masyarakat weekly as saying.<\/p>\n
This is hampering further development of many projects. Plans
\nfor the new projects must be put on the back burners, and some
\ncurrent projects have been shelved.<\/p>\n
Panangian forecasts about 40 percent of some 2,500 existing
\ndevelopers in the country will either go bankrupt or be forced
\ninto liquidation.<\/p>\n
Many of these would be small to medium developers, but large
\ndevelopers would be hurt as much of their funding comes from
\nforeign loans, he says.<\/p>\n
Project delays and cancellations will cause high unemployment
\nin property and construction.<\/p>\n
Some 40,000 construction workers in Jakarta have reportedly
\nlost their jobs due to postponement of projects. The Indonesian
\nReal Estate Association estimates about 192,000 workers are
\nthreatened by unemployment because of the decline.<\/p>\n
Others claim that as many as two million casual laborers --
\nmostly migrants -- who have relied on employment from
\nconstruction projects in Jakarta have been without work for many
\nweeks.<\/p>\n
Along streets in West Jakarta, these workers, who commute from
\nnearby towns daily to work at construction sites in the city,
\nswarm in packs as they wait to be picked up for jobs. The harsh
\nreality is that there are fewer trucks picking them up.<\/p>\n
Property and construction-related sectors have also had to
\nbear their share of troubles from the crisis.<\/p>\n
Head researcher of independent social research organization
\nAkatiga, Yuni Thamrin, says small-scale producers of bricks and
\nroof tiles are suffering from declining sales, and many are
\nanxiously awaiting late payments from cash-strapped developers.<\/p>\n
\"These companies have no way of getting capital to continue
\ntheir business,\" Yuni says.<\/p>",
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