The global economic slump is likely to hit Jakarta's property development business in 2009, particularly the office and condominium market, as demand is projected to slow due to a possible contraction in the country's economic growth, property consultant Provis says.
While Provis did not provide any clear estimate for the expected slowdown in demand for office space, the reasons for the decline would include negative impacts on banks and financial service companies, which would slow down development of their own branch networks.
These types of company were previously major demand generators for office space, over the last three years.
On the tenant side, a proportion of existing demand will become distressed as some expansion and relocation approvals are likely to be put on hold in the near term and lease renewal terms may be shorter, according to Provis.
The company believes that for this year, there would be around 154,533 offices available on the greater Jakarta market both in the central business district (CBD) and in non-CBD locations.
"The relocation of a company can only be planned a year ahead at the earliest stage. It takes two to three successive quarters for negative impacts on demand to clearly show up," said Provis associate partner and strategic consultant Arief Rahardjo.
Office space supply in the near future may also become more limited than first thought, as projects under construction may potentially experience slower progress or even delays in completion.
Developers are likely to be more conservative in reviewing future project feasibility or potential construction time-lines.
Provis has also highlighted a slower demand for condominiums due to higher interest rates, since these will discourage middle to upper income clients from investing in property, since they will seek higher yields in other investment portfolio opportunities.
"For middle segment buyers, they prefer to spend their money on daily economic activities rather than on property, while the upper middle segment prefer to invest their money in sectors other than property," said Arief.
However, David Cheadle, Provis managing partner and senior consultant still believed that attitudes towards the property market were not simply a reflection of those towards the economy as a whole, as some people still regarded investment in the property sector as a necessity for their portfolio," he said.
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