Developers advised to consolidate

JAKARTA (JP): Real estate developers need to consolidate their businesses to survive the current property slump caused by a credit squeeze and weakening demand, a noted analyst said yesterday.

"They have to adjust themselves to the changing market which is witnessing increasingly tough competition due to the decreasing demand. Total consolidation is a must for them," director of the Center for Indonesian Property Studies (CIPS), Panangian Simanungkalit said.

He explained that developers should consolidate through restructuring and repositioning of their businesses to succeed in the changing market.

Panangian, who is also the chairman of Panangian Simanungkalit & Associates, noted that unlike the last two years, this year and next year will see the property market dominated by end-users.

In 1994 and 1995, the market was monopolized by speculative buyers and individual investors who sought capital gains.

This year, speculative buyers and individual buyers are preferring to deposit their money in banks and so they are staying out of the property market.

The property business, Panangian said, is also experiencing an increase in risks, so that developers are finding it difficult to get funds from the capital and money markets.

Banks, which were urged last year called by Bank Indonesia, the central bank, to limit their credits to developers, are now reluctant to finance property projects. They already plan to cut their credits for the property sector to Rp 5 trillion (US$2.3 billion) this year from Rp 10 trillion last year.(13)