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.