Buyers Testing Property Market as Pent-Up Demand Surfaces: Analysts

Indonesia’s residential property sector looks to have bottomed out, with demand expected to grow as the economy improves in the second half of the year, according to international property consultancy Knight Frank.

Fakky Ismail Hidayat, head of research at Knight Frank, said the scarcity of credit during the global financial crisis and uncertainty over the domestic economy have led to pent-up demand, with increasingly confident buyers starting to test the market.

Interest rates, stubbornly high for several months as bankers refused to drop their rates despite jawboning by Bank Indonesia and progressive cuts in the benchmark BI rate, have started to inch downwards, cutting mortgage costs for buyers.

In addition, the rupiah has strengthened steadily after falling precipitately last year.

Over the first quarter, according to an April survey by property consultants Jones Lang LaSalle Indonesia, condominium sales plunged by half to 700 from 1,400 units in the last quarter of 2008, and leasing demand dropped more than 60 percent in the first quarter.

“Residential or condominium properties are expected to become the favorite sector for individual and institutional investors,” Fakky said, noting supply had dropped drastically, excluding projects nearing completion.

The office segment has also been dismal, Fakky said, with Jakarta office occupancy declining to 87.6 percent in the first quarter, although rental prices for premium A buildings still grew by 0.56 percent in US dollar terms or 6.9 percent in rupiah.

Average selling prices for Jakarta’s prime residential segment grew 18 percent against growth in Moscow and Bangkok of 13 percent and 23 percent, respectively, Knight Frank said. Yet prices for the same segment in Hong Kong and Singapore fell sharply, by 25 percent and 15 percent, respectively, as the two cities’ exposure to the global financial system bit into property values.

“Jakarta had less impact from the global crisis on prime residential properties, as most the buyers, excluding for Bali, were domestic,” Fakky said.

Indonesia’s prices are minuscule by global comparisons, with the average selling price for prime residential space in Jakarta costing $2,300 per square meter, compared with London at $40,000 per square meter.