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)