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)