High interest rates forcing builders to delay projects

JAKARTA (JP): High interest rates, marketing competition and continued tight lending allocations for the property sector have forced some developers to postpone projects, particularly in the office and retail sectors, a property analyst said yesterday.

"The government's tight monetary policy aimed at curbing economic overheating has caused prime lending rates to remain high at between 20 and 22 percent per annum, despite the decline of U.S. interest rates during the last six months," Craig Williams, a senior technical advisor to the property consulting firm PT Procon Indah, said.

Procon Indah operates in association with an international property consulting company Jones Lang Wootton (JLW) of Britain.

Williams, who is also a director of JLW Pacific, said that next year's supply of prime offices in Jakarta will probably total 147,250 square meters, down by 47,400 square meters from his company's previous projection, owing to delays in the construction of planned projects.

Speaking at a press conference launching of Procon's quarterly property outlook, he noted that out of the projected 147,250 square meters, which will be made up of four projects, some 75 percent or 115,250 square meters still has only probable development status.

The supply for 1998 is projected to be 450,955 square meters, of which 65 percent has only possible development status.

Supply for 1999 is projected to be 511,830 square meters, all of which has only possible development status.

In the retail market, Procon Indah identified delays in construction projects by up to two years from their original schedules in 1997 and 1998.

Williams said that in spite of a decline in demand, the occupancy rate of retail centers reached 95 percent in the first quarter of this year due to the slow addition of supply.

He said the impact of the high interest rates is particularly felt by the residential sector, which is witnessing a decline in sales.

Surveys undertaken during the last six months show that the sales of medium to upper-class houses is continuing to decline.

According to Williams, the only sector to record an upward trend in sales was houses for the lower classes. Prices for houses valued at less than Rp 50 million increased by between 5 percent and 18 percent.

"Buoyant sales of small houses with prices of less than Rp 100 million were recorded enabling some developers to increase prices in this sector," he noted.(13)