20% oversupply in apartments, office space

20% oversupply in apartments, office space

JAKARTA (JP): The property market this year (1996) will see an oversupply of apartments and office spaces by about 20 percent, chairman of Real Estate Indonesia -- the Indonesian developers association -- Alexander Edwin Kawilarang said here over the weekend.

"Property developers should seriously consider this oversupply in planning their investments," the REI chairman said at a year's end meeting with the press.

As many as 9,786 apartments entered the Jakarta property market last year, causing an oversupply of 20 percent.

Another 43,000 apartments will enter the market within the next two years, he said, suggesting that the apartment business will become more sluggish.

The oversupply in apartments could press down the prices by 40 percent. "This downward trend could continue until it reached a low price that would encourage people to buy. Only then the will prices recover," he said.

According to Edwin, last year the oversupply in office spaces reached 13 percent, as the demand totaled only 2.3 million square meters while the supply surged to about 2.7 million square meters.

This year, there will be a new supply of about 400,000 square meters. "This will result in an oversupply of 20 percent," he said.

Already, the office rentals had been decreasing. In 1994, the rentals averaged US$25 per square meter, down to an average $12 per square metre last year.

He noted that the oversupply particularly hit the office spaces on second-class area like those along TB. Simatupang outer ring road.

Prime-site office spaces like those along M.H. Thamrin and Sudirman roads saw a much better business with an average 90 percent occupancy rate.

Besides the oversupply, apartment builders will also likely encounter management problems as most of them are new-comers to that business.

Meanwhile, property analyst Panangian Simanungkalit recently noted that the sales of houses this year will drop by 40 percent compared to those of last year. "This is due to the high interest rates and the increasingly healthy mechanism of the house market," he said.

He added that this year will see less speculative buyers and the house market will be dominated by end-users.

"Property businessmen will find it increasingly difficult to sell luxury houses, which are usually secondary houses for the buyers," he said.

Banks, he noted, have already noticed the trend and they have become selective in giving credits to developers, especially developers of the luxury houses.

The REI general chairman agreed. "They should be particularly careful with the developers of middle-class and high-class housing," he noted.

But he called on banks to increase their credits for low-cost house development because the demand for this kind of houses is growing.

Different from low-cost houses, which are bought mostly by end-users, the middle and high class houses are bought mainly by speculative buyers.

According to Bank Indonesia, the central bank, until last September, credits for property development have exceeded Rp 41 trillion (US$17.94 billion) or 17.2 percent of the total credits outstanding. (13)