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)