Better property business predicted in 1997

Better property business predicted in 1997

JAKARTA (JP): The Indonesian Real Estate Developers
Association predicted over the weekend that the property business
would perform better next year, along with a higher per capita
income and an expected decline in lending interest rates.

Association chairman Edwin Kawilarang, in reply to analysts
who predicted a slump in the property business next year, said
the association was still upbeat about the future.

He said growth would be seen especially in the development of
small houses, apartments, condominiums and office buildings.

Analyst Panangian Simanungkalit and tycoon Ciputra recently
predicted the property business would plunge and hundreds of
small and medium developers would go bust as bad loans in the
sector would increase.

Panangian predicted problem loans in the property sector would
reach Rp 5.6 trillion (US$2.41 billion) up from Rp 5.25 trillion
this year.

Edwin dismissed bad loans, saying they represented only 7.2
percent of the total loans channeled to the property sector.

"That means 93 percent of property business loans have
performed well. Why do people make a great fuss about the small
percentage of bad loans?" he asked.

Edwin based his optimism on further expected growth in the
country's Gross Domestic Product next year.

The public's purchasing power would increase as the economy
was projected to grow 7 percent and the industry and trade sector
12 percent, he said.

High interest rates would result in a slump in the property
market, Edwin said. But he believed the country's banks would not
increase interest rates as inflation had declined in the past 11
months and some banks had lowered their lending rates by 1 or 2
percentage points.

"The association hopes the monetary authority will encourage
banks to lower lending rates to between 16 percent and 17 percent
from above 20 percent at present," he said.

Edwin said expatriates, who have been recently allowed to buy
property in the country, would become prospective buyers of
luxury houses, condominiums and resorts next year, he said.

Edwin called on the government to issue guidelines of the
regulation on foreigners buying property because without clear
procedures, foreigners would be reluctant to buy houses.

Edwin said next year's property market would be dominated by
small houses of less than 45 square meters.

He said association members had built 289,000 simple houses
over the past two years and plan to build another 111,000 in the
next two years.

The government targeted the association would build only
200,000 simple houses in the current Five-Year Development Plan.

Middle lower-class apartments and condominiums would also sell
well next year, with 87 percent of the customers living in them
and 13 percent leasing them out, Edwin said.

Following the current trend, office buildings would also
increase despite fears of oversupply, he added.

He said office space had increased 21.5 percent to 2.37
million square meters this year from 1.95 million square meters
last year. The occupancy rate rose to 86 percent in the third
quarter of the year, from 84 percent the previous quarter.

The association would establish next year a multifinance firm
with Bakrie Group to provide alternative credit to developers as
well as prospective house buyers, he said.

The multifinance firm with a Rp 40 billion (US$16.9 million)
paid-up capital would be between 25 percent and 40 percent owned
by the association. (jsk)