Foreigners still reluctant to enter property sector

JAKARTA (JP): Despite the already bargain level in Indonesia's property sector, overseas investors remained hesitant to enter into the sector, analysts said yesterday.

"Interest from foreign buyers, particularly from Singapore and Hong Kong, has not resulted in actual investment," said an equity analyst at a joint-venture securities firm.

He said the reluctance had been due to the unstable currency, high interest rates and an oversupply.

Property businessman Mohammad S. Hidayat, who is also a top official at the Indonesian Chamber of Commerce and Industry, said developers had been trying to find foreign interest in their operations, but under the current crisis they might not be successful.

However, the analyst said there had been strong interest from specific overseas investors looking for opportunities in the industrial estate subsector, adding that investors from Singapore and Hong Kong were considering PT Kawasan Industry Jababeka and PT Surya Semesta Internusa.

"But I don't think they will make any deal before the March presidential election," he said.

He said foreign investors would like the country to be run by pro-business leaders.

The People's Consultative Assembly, made up of members of the House of Representatives and representatives of social and government organizations appointed by President Soeharto, will convene in March to elect a new president and vice president and adopt its State Policy Guidelines.

Another analyst said investment firm Schroders Asia Property was in serious talks with several Indonesian property magnates, who had been facing difficulties with their unhedged U.S. dollar loans.

He said property tycoon Ciputra had been working hard to sell his property assets to service his huge unhedged overseas debts, which he believed to be more than US$280 million. "Ciputra has personally guaranteed his companies' debts," he said.

Rumors in the market say Ciputra, who controls 2,500 hectares of land in Greater Jakarta, has sold his stake in real estate developer Pantai Indah Kapuk to tycoon Sudono Salim and has had no luck in selling his stake in PT Metropolitan Kencana.

Publicly listed PT Duta Anggada is also believed to be looking for foreign interest in several of its giant projects, including the Pavilion Apartments project in Jakarta.

A month before the crisis, the company announced an ambitious $400 million high-rise property project to be developed in Jakarta over the next four years.

The property sector, which had already been in the doldrums for over a year, has been the worst hit by the current economic turmoil, which has seen the rupiah plunge to as low as 17,000 to the U.S. dollar from about Rp 2,400 in July. The plunging currency has made it impossible for companies to service their unhedged overseas loans.

Analysts said foreign investors had, so far, shown no interest in the property sector, especially in the office, apartment, retail and residential subsectors.

One said that although many listed property companies were already selling at large discounts, investors buying into them would still have to sort out a refinancing mechanism to bring down the firms' gearing ratio.

"If not, the companies would still be in a state of bankruptcy," he said.

Property consultant Panangian Simanungkalit said all 23 property firms listed on the Jakarta Stock Exchange were technically bankrupt.

He said the companies controlled 60 percent of the country's commercial property assets and 40 percent of residential assets.

If the rupiah stood at Rp 10,000 to the dollar, he predicted a property crash would occur in the second half of this year.

The analysts said an oversupply problem in high-rise property and limited demand were also major factors discouraging investors in the property sector.

"Vacant space in prime buildings has been growing," he said, adding that layoffs in the service sector and persistent high interest rates were indicators of lower future demand. "The sector needs two to three years to recover," he said.

"I think the government should let foreigners own up to 100 percent in Indonesian property," Panangian said. He said clear and transparent regulations in the sector should also be introduced.

Hidayat agreed, saying that the government should ease the limitation on foreign ownership in the property sector.

Property consultant First Pacific Davies Indonesia reported that as of Jan. 12, about 47 percent of office projects in Jakarta -- that previously had confirmed operation dates -- had been put on hold, as developers attempted to consolidate their position in the face of offshore funding and the weakening of the rupiah.

"The total lettable area of those projects is approximately 536,000 square meters," the firm's media statement said. The amount would increase by no less than 25 percent over the next three months, it said. (08)