Developers forced to lower property prices
JAKARTA (JP): Property analyst Panangian Simanungkalit said yesterday the current monetary upheaval would force developers to lower property prices to a "fair" level in order to survive and gain customers.
"In theory, developers are unlikely to raise property prices amid the current tight monetary condition because they need a lot of funds while the property demand is depressed," Panangian said.
He said developers lacked funds because of an increase in the banks' lending rate and the government's regulation in July which barred banks from giving credit to developers to appropriate land for real estate.
Banks' lending rates have increased to between 25 percent and 30 percent from between 18 percent and 22 percent in July, following the tightening of the monetary policy in the middle of last month.
Panangian said developers also had to pay higher development costs following the downfall in the rupiah's value since many components of property projects were imported or paid in dollar.
"Developers have to cut prices. Otherwise, they will be abandoned by buyers and go bankrupt," Panangian said.
He predicted developers would increase the price of middle-to upper housing by up to 20 percent but retain the price of modest housing.
Developers, however, would not suffer losses due to price discounts but only have their profit margin cut from by between 40 percent and 50 percent to a range of 10 percent to 15 percent, he said.
"This will lead to a fair price level for the public. The profit margin of up to 50 percent enjoyed by developers in the past was too high," Panangian said.
According to him, only developers with good financial structure, professional human resources and good planning could survive the current monetary difficulties. This group accounts for about 60 percent of the country's total 2,500 developers.
The remaining 40 percent of developers would go bankrupt or be forced to move to other businesses, he said.
Meanwhile, property consultant Burwood Publishing Indonesia reported over the weekend that licensed investment in property development had decreased 190 percent to Rp 983 billion (US$338.9 million) this month with 11 projects, compared with Rp 3.07 trillion in July. Last month, licensed investment projects in real estate were worth Rp 2.7 trillion.
The September issue of Burwood Report said four of the 11 property projects which were licensed this month were located in Jakarta.
The projects include development of the Bintaro Jaya Megamall worth Rp 375 billion, the Pluit Karang Plaza (Rp 240 billion), the Arion Ibis Hotel (Rp 40 billion) and renovation of the Kramat Jati marketplace (Rp 27 billion). (jsk)