Small-scale developers losing property war<\/p>\n
JAKARTA (JP): A scarcity of long-term finance, coupled with an
\noversupply in the property market, is the bane of small-scale
\nhousing developers, a property executive says.<\/p>\n
Nugroho Suksmanto, the chairman of the Jakarta chapter of the
\nIndonesian Real Estate Association, said the current credit
\nsqueeze, although not as bad as that in the early 1990s, was felt
\nparticularly harshly because housing developers were now
\nencountering an oversupply of products by 14.7 percent.<\/p>\n
Speaking at a seminar on housing organized by the Indonesian
\nReal Estate Association, Nugroho said the oversupply had raised
\nthe costs of investment in the property sector, so that only
\nlarge-scale developers can afford to invest.<\/p>\n
\"Large developers have the economies of scale needed to
\nsurvive competition, and this will eliminate smaller developers,\"
\nhe said.<\/p>\n
Nugroho said that in the early 1990s, when the government
\nannounced a sudden tight money policy, lending rates went as high
\nas 30 percent per annum. Current rates range between 20 percent
\nand 22 percent.<\/p>\n
Merger<\/p>\n
Nugroho said that in such a situation, small-scale developers
\nshould merge in order to strengthen their capital structures and
\nsurvive competition.<\/p>\n
He said the current credit squeeze has caused a number of
\nsmall developers to operate below feasible levels.<\/p>\n
For example, a developer may ask for a credit of Rp 10 billion
\nfrom a bank but is given only Rp 7.5 billion.<\/p>\n
\"If the developer is respectable, it must admit that it cannot
\noperate on Rp 7.5 billion. But because it is determined to do the
\nproject, it will go ahead anyway,\" Nugroho said.<\/p>\n
In the end, the developer will have to rely more on its
\nprospective customers to finance a project which has not been
\ndeveloped yet.<\/p>\n
Such cases have led to \"fictitious housing projects\", which
\nhave been the subject of complaints of many customers in the last
\ncouple of years.<\/p>\n
According to previous reports, the Indonesian Real Estate
\nAssociation has admitted that out of 13 developers known to be
\ninvolved in \"fictitious projects\", 10 were its members.<\/p>\n
Nugroho said that large companies would emerge as the winners
\nbecause they have the access to finance.<\/p>\n
But these companies left to compete will have to do so under
\npressure, with price wars and cut-throat competition, he said.<\/p>\n
Nugroho predicted, however, that the government may loosen its
\ntight money policy with the nearing of next year's general
\nelections.<\/p>\n
\"Hopefully we will see things getting better,\" he said. (pwn)<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/small-scale-developers-losing-property-war-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }