Cancellation of property projects may continue

Cancellation of property projects may continue

JAKARTA (JP): Tough times will continue to shade the property
sector in the capital for the next 18 months due to the currency
upheaval, with more postponed or canceled projects and less
demand, according to a property consultant firm.

Colliers Jardine's head of research Evelyn Khoo said yesterday
the suspension of projects would increase over the next 12
months, particularly large-scale, mixed-used developments, as
more developers were expected to feel the pinch of the ongoing
monetary turmoil.

"Demand in most sectors will drop by about 20 percent to 30
percent after the slowdown in the country's economy," she said.

However, she said Indonesia's property sector remained
attractive to foreign investors.

"There's no indication Indonesia is about to see a property
crash where property prices and demand usually drop by more than
40 percent," she said.

A price correction was expected over the next 12 months with
rental and capital values adjusting to realistic levels while a
rise in vacancies was inevitable, she added.

Creative marketing tools such as attractive financial
packages, lower exchange rates for U.S. dollar payments and
rupiah price lists would be prevalent in the market for the next
year, she added.

In terms of project funding, "sources will expect to see high
levels of security before granting loans for project
developments, particularly large-scale developments," Khoo said.

The monetary crisis in Asia has also hit Indonesia. The value
of the U.S. dollar has risen by more than 80 percent against the
rupiah since July.

Multiple plunges

Khoo said the crisis' shock had a crippling effect on interest
rates, inflation and gross domestic product growth and the
property market.

She said that 34 percent of some 1.85 million square meters of
office space that would be supplied between 1998 and 2000 was
either delayed or canceled in October.

"Total supply will increase to 3.77 million square meters by
the end of this year, an increase of 15.7 percent over the past
12 months.

"Although potential supply is high with 1.85 million square
meters expected to be completed for the 1998/2000 period, the
number of projects expected to be rescheduled for a later date
will increase," she said.

Demand in the leasing sector in 1997 was still strong with
vacancies at 9.6 percent, she added.

"However, demand in 1998 is to drop by 25 percent to 30
percent due to a slowdown in the banking, financial,
construction, transport and service industries.

"Average rentals have declined by about 5 percent to 10
percent since October and could decline by a further 5 percent to
10 percent over the next 12 months, although prime buildings will
be less affected."

The excessive depreciation of the rupiah and high interest
rates have also affected the retail sector, she said.

The current 95 percent occupancy rate would drop to 85 percent
by the end of next year, she added

"The potential supply for the next three years is 692,829
square meters with 534,766 square meters, or 77 percent of future
stock, at various stages of construction.

"As much as 34 percent of the projected supply has been
delayed or halted as of the end of October. However, this figure
is expected to increase as the full impact of the market
sentiment is to be felt," she said.

In the hotel sector, Khoo said that tourist arrivals were not
likely to improve over the next year.

"There is currently a surplus of rooms, with another 9,728
star-rated hotel rooms in Jakarta expected to enter the market
between 1998 and 2000, if all proposed projects continue," she
said.

But three five-star hotels -- Danamon Sheraton, Marriott and
ANA Hotel totaling 1,377 rooms -- had been delayed as of October,
she added.

According to Khoo, prices of industrial land have remained
relatively stable despite the sharp depreciation of the
rupiah.

However, prices are expected to decrease by 5 percent to 10
percent by the middle of next year due to an expected drop in
demand and then improve toward the end of 1999 as the market
regains confidence.

The apartment sector had also been gloomy. As of October,
about 10 percent of the future apartment supply had been put on
hold in light of the economic crisis, she said.

"A further 15.8 percent of projects currently under
construction had been suspended due to the lack of funds or
contract negotiations," she said.

More apartment projects will be delayed or canceled over the
next 12 months, therefore Colliers Jardine had revised its supply
prediction to 23,991 apartments from 27,227 for the 1998/2000
period.

The company predicted that rental costs would decrease by
between 8 percent and 10 percent within the next year. (icn)