High interest rates hit property projects
High interest rates hit property projects
JAKARTA (JP): High interest rates and banks' reluctance to
finance property development have forced developers to either
delay construction of "strata-title" apartments or redesign their
projects for hotels and office buildings.
PT Colliers Jardine Indonesia, a property consulting company,
said in its latest Jakarta Property Market Review that in the
first quarter of this year, Bank Indonesia, the central bank,
took pre-emptive steps to restrict bank funding to the property
sector and took measures to push interest rates upwards to curb
inflation.
Such conditions resulted in a lack of local funds for property
development. Lending interest rates also increased to about 21
percent to 23 percent per annum, thereby affecting demand for
apartments sold under "strata-title" arrangements, the review
said.
Under a strata-title arrangement, a buyer is allowed to own an
apartment, while the land below it is owned collectively.
The review said that a survey conducted in June indicated a
decline in the occupancy rate of strata-title apartments to 45.7
percent from 48.6 percent last December.
"Average occupancy is projected to fall to between 20 percent
and 30 percent by the year's end if all of the 4,631 units
planned for completion in 1995 actually finish as scheduled,"
Colliers Jardine Indonesia's managing director, Peter Collins,
commented last week.
Given the prospect of current demand levels continuing over
the next 12 months to 18 months, some strata-title projects have
been redesigned as hotels, service apartments, or office
buildings, he said.
Examples
Two examples of the redesigned strata-title apartments are the
Casablanca Apartments in South Jakarta, of which one tower has
been converted into serviced apartments, and the apartment
component of the mixed-use Oasis Square in Central Jakarta, which
has been set aside in favor of an office tower, he added.
Furthermore, the introduction of luxury tax on apartments has
also dampened demand for the more expensive strata-title
apartments, Collins said.
"Our observations of the market indicate that the public is
not fully aware that the tax only applies to apartments greater
than 150 square meters in size," he said.
Collins noted that in contrast to the strata-title apartment
market, high average occupancy characterizes the leased and
serviced apartment market, where occupancy rates were between 90
percent and 94 percent in June.
"As the economy is spurred on by increased economic growth and
demand in the industrial sector, the number of expatriate
technicians, consultants and managers coming to Jakarta has also
risen resulting in higher demand for leased and serviced
apartments over the last six months," he said.
Market observations indicate a high demand for leased
apartments with rental rates ranging between $18 and $24 per
square meter.
"We expect rentals at leased apartments to stay firm until the
end of the year, between $15 and $25 (net of service charge),"
Collins added.
In the central business district, new exclusive serviced
apartments such as Ascott and Sahid Palace Executive Apartments
are offering rental rates ranging between $31 and $54 per square
meter, he said. (31)