Attracting windfalls in time of crisis

Attracting windfalls in time of crisis

Hendarsyah Tarmizi, The Jakarta Post, Jakarta

Recent floods, and anti-American demonstrations launched by
Muslim radicals following the United States-led strike against
Afghanistan late last year, were a blessing in disguise for many
apartment owners.

Many apartment buildings in Jakarta saw a surge in occupancy
rates during the peak of the anti-U.S. protests as Americans and
other foreign residents packed up their goods and moved to safer
locations.

The floods that paralyzed the capital for several weeks
recently also proved a boon for apartment owners, especially
those located in flood-free areas. Many foreigners living in
residential areas moved to apartments to escape the deluge,
boosting occupancy rates.

But the brief surge in demand brought only temporary relief to
the country's depressed apartment sector.

"The overall demand for apartments is likely to remain soft in
2002 due to the anticipated slowing economic growth and
uncertainty on the realization of foreign investment approvals,"
says property consulting firm Procon Indah in its latest property
market review.

The economic variables are certainly not encouraging for the
country's business activities. Although there was 3.3 percent
growth in the country's gross domestic product (GDP) last year,
the improvement in economic activity was still not sufficient to
boost the property sector, which is driven mainly by foreign
investment.

The low confidence of foreign investors in the Indonesian
economy as reflected by the continued drop in foreign investment
approvals last year will remain a major obstacle to the future
growth of the property sector.

According to Procon, despite a slight increase, the overall
rental market for apartments remained stagnant, with occupancy at
59.8 percent as of the fourth quarter of last year.

Serviced apartments, particularly in the central business
district (CBD), suffered a decline in occupancy rates due to the
holiday season and increased security concerns, which have led
some expatriates to leave the country.

The threats by radical Muslim groups to launch a "sweeping
operation" against Americans caused wide-spread fears among
foreigners. But a number of apartments offering high quality
security systems received a windfall from the situation.

"We actually received more inquiries during that time, even
though the number of foreigners visiting Indonesia dropped
sharply following the attack on the World Trade Center," Veri Y.
Setiady, the marketing manager of the Apartment Menteng
Executive, told The Jakarta Post.

Veri said that the inquiries mostly came from foreign
embassies, which now preferred to accommodate their staff in
apartments for security reasons.

For these clients, an apartment's security system is the main
priority. "It's no wonder that an embassy first checks our
security system before making a reservation for its staff," he
said.

Actually, the trend toward relocating embassy staff in
apartments with special security systems began two years ago when
the capital was hit by a series of bombings.

Irza Ifdial, the marketing manager of Apartment Kuningan and
Setiabudi, said that, besides security reasons, many apartment
complexes were able to survive the crisis because of their
ability to provide reliable services to foreign residents.

"This is the reason why we regularly adjust our rental rates
to keep our apartment units more competitive than others," he
said, adding that providing free copies of newspapers and free
subscriptions to cable TV services were part of his complex's
marketing strategy for staying afloat.

According to Irza, the sharp drop in foreign tourist arrivals
following the WTC and Pentagon attacks has had no immediate
impact on the apartment sector. Unlike hotels, apartments which
provide accommodation facilities for long-term visitors had not
been severely hurt by the travel industry's woes, he said.

However, he admitted that current business activity was still
far from reaching the level it recorded before the crisis hit the
country, even though rental rates had droppped significantly.

The current average rental rate of between $14 and $17 per sq
meter is almost half the pre-crisis level of between $24 and $25
per sq meter. But in rupiah terms, the rate is higher than before
the crisis, when the conversion rate of the local currency
against the U.S. dollar was about Rp 2,500 (compared to more than
Rp 10,000 at present), Irza said.

This is why foreign residents are still considered the most
feasible market even though their numbers have continued to
decline during recent years.

According to data issued by the Ministry of Manpower, the
number of foreign workers (the main market for apartments)
dropped to as low as 8,500 in September last year, compared to
more than 30,000 prior to the crisis.

Cheah Hooi Teng, the general manager of Allson Residence,
acknowledges the difficult situation being faced by the country's
apartment sector but he considers it part of the business cycle.

"We strongly believe that foreign residents, who left the
country, will return someday and reopen their business activities
in Indonesia," he said.

Cheah said the most important thing to keep in mind in facing
the difficult situation was that every apartment owner needed to
be creative and innovative in the marketing of their
accommodation facilities.

He said that Allson's concept of introducing a classical
touch, such as in the use of furniture, had proven successful in
attracting tenants.

According to Procon, unlike in the rental apartment market,
sales activities in the primary market of strata (ownership)
title apartment units were quite active during the fourth
quarter. Puri Imperium achieved the highest sales record with 16
units sold, followed by Batavia Apartments with 10 units sold.

Most sales transactions, the property consultant said,
occurred in developments aimed at the middle to upper-middle
class market that offered competitive, rupiah-based prices.

Generally, prices ranged from Rp 5 million to Rp 7.5 million
per sq meter. Most transactions are cash-based, since banks are
still very selective about providing mortgage financing for
condominium purchases.

The net take-up (the net commutative increase in space
occupied) of existing condominium projects was recorded at 60
units during the fourth quarter, while sales transactions in
proposed projects reached 25 units.

Procon says that total take up for 2001 stood at 210 units,
reflecting a significant increase of 31.3 percent compared to
last year's figure.