Apartment market to remain gloomy until year end

JAKARTA (JP): Property consultants have predicted that the capital will continue to experience a decline in demand for residential apartment rental space throughout the year, and expect increased vacancy at the end of 1999.

PT Procon Indah/Jones Lang LaSalle said the dim outlook was particularly due to the continuing business contraction and company rationalization.

"Although economic indicators, such as GDP growth, interest rates and inflation, showed early signs of recovery during the first quarter of 1999, uncertainty toward the political events in June and December remains," the company said in its latest biweekly property report.

It predicts the overall vacancy levels to increase to 45 percent by the end of 1999 and to reach 48 percent by the end of 2000.

A slight rebound is expected to occur at the end of 2001 as a result of positive economic growth in 2000 and 2001, which would generate new demand and limited new supply in the market, the company said.

Weak demand and higher vacancy by 2000 would increase pressure on landlords to reduce rental rates.

The report said total occupied apartments declined by 108 units during the first quarter of 1999, due to weakened demand resulting by the shrinking expatriate population amid foreign companies' on-going rationalization.

Total vacancies during the period was 5,859 units, reflecting an increase of 2.3 percent over the quarter. The average vacancy level was 42 percent as at March this year.

Weakened demand for rental apartments have forced developers to further reduce rental rates or offer other incentives to secure new tenants.

More apartment owners now offer shorter lease terms or a minimum of six months with quarterly payments. They previously offered two to three-year leases with payments in advance.

Some landlords have even started to offer existing tenants monthly lease extensions in a bid to maintain occupancy levels.

Most owners of prime apartments continued to offer rents in U.S. dollars, but with discounts of up to 60 percent following the economic crisis.

The company predicted apartment rentals to bottom out in 2000 and grow modestly in late 2001 as demand was expected to rebound.

Total stocks now stand at 13,984 units, a figure reflecting a 6.2 increase from last year, according to the report.

It said no new projects were completed during the first five months of the year, in line with the generally sluggish construction activities during the period.

All construction work is expected to be suspended until the general election process is concluded.

The supply of purpose-built rental apartments, including serviced apartments and rental townhouses, remained at 5,786 units as of May.

It is estimated that 1,189 rental apartment units would enter the market by 2001, about 68 percent of which would come from individual condominiums available for lease.(cst)