Industrial estate sales drop as foreign investment falls

JAKARTA (JP): Declining investor interest during Indonesia's turbulence will continue to slow demand for industrial property this year after last year's downturn, according to a recent property report.

The biweekly report issued by property consultant Procon Indah, in cooperation with its partner Jones Lang Wootton Research, said the industrial sales activity would not pick up until 2000, when the economy is expected to swing back.

"Based on the projected decline in the manufacturing sector, which determines the demand for industrial land, cumulative take- up in 1998/1999 is projected to bottom at 76 percent to 78 percent of total land area," the report's Dec. 21 issue said.

This is a slide from last year's third quarter industrial property sales, totaling 3,789 hectares, or 79 percent of existing industrial area, which also showed minimal market activity.

The report said sluggish sales would force developers to sell their remaining industrial properties at a big loss to ensure that investor commitment maintained cashflow.

In the third quarter of 1998, the total area of available industrial land remained at 4,792 hectares.

Foreign firms were seen to delay industrial investment decisions in response to the deterioration in domestic consumer demand and declining exports as a result of the economic crisis.

Predictions of continuing social unrest and the uncertain political conditions in Indonesia this year had a further negative impact on major foreign investment decisions, the report said.

The secondary market, however, showed some activity as owners were more likely to lower prices, giving investors major savings.

The report said that most joint-venture industrial estate developers targeting foreign companies quoted their prices in U.S. dollars.

But they had now reduced asking prices by 10 to 20 percent, some even as low as 15 percent. They also set the exchange rate at Rp 5,500 to Rp 7,500 to the dollar, lower than the market level of about Rp 8,000.

"This indicates an estimated drop of effective prices by up to 50 percent in U.S. dollar terms," the report said.

In Bekasi, West Java, dollar-denominated asking prices dropped by 75 to 90 percent, in Tangerang they dropped by 40 to 75 percent, Karawang by 60 to 70 percent and Serang by 55 to 85 percent, the report said. All are industrial boroughs surrounding Jakarta.

As the economy remained in the doldrums last year, developers shelved expansion plans and focused on selling their developed properties. The proposed development of about 2,385 hectares of industrial land had been put on hold since the onset of the economic crisis in July 1997, the report said. (das)