Investment in new hotels set to stay low this year

Investment in new hotels set to stay low this year

JAKARTA (JP): Investment in new hotels in the capital will
remain low this year as fears over security problems will
continue to discourage investors, analysts have said.

PT Procon Konsulindo, in association with Jones Lang Wootton
(JLW) TransAct, has predicted in its latest property outlook that
the country's political uncertainty and major national events to
be held in Jakarta, including the general election scheduled in
June and the presidential election slated for November, would be
the major events affecting hotel industry performance in 1999.

JLW TransAct Regional Director for Asia Antony Karp said on
Tuesday that foreign investors would be looking at other Asian
cities, and Bali, and would exclude Jakarta from their preferred
destinations.

"There is some uncertainty about social and political
stability and until that is resolved foreign investors are
focusing on other Asian destinations, Bali excepted," he said.

Karp said that there are currently over 30 foreign investors
eying hotels in Bali which will bring in a total investment of
over US$500 million. This investment would only account for 10
percent of the total $5 billion investment in the hotel industry
in South East Asia.

"Foreign investment institutions from the United States,
Europe and the Middle East are seriously looking at investment
opportunities, but are unlikely to act until the government
implements acceptable policies and plans of action to restore
confidence and stabilizes both the economic and socio-political
conditions," Karp said.

Procon Konsulindo/JLW TransAct Senior Technical Advisor David
F. Horovitz said the investors are also eying Thailand because it
has more stable political and social conditions and more
favorable regulations compared to Indonesia.

Besides political uncertainties, Indonesia had other problems,
including property ownership restrictions, land titles, high
taxes and unclear bureaucratic procedures, Horovitz said.

"Foreigners are still uncomfortable with the property
ownership process and restrictions in Indonesia. To make this
worse, the government also introduced recently an additional 5
percent tax for changing names on land certificates," he said.

Horovitz said as defaulting borrowers sidestep their
obligations and forego their ownership responsibilities, local
banks might benefit from selling the assets to foreign investors.

The main problem currently facing banks, however, was the
legal position regarding foreclosure, he said.

Karp said foreign investors were still reluctant to make
purchases because property owners still maintained an
unrealistically high property value.

"Foreign investors will buy at a price 50 percent below the
production costs because Indonesian hotels are currently bringing
in insignificant income," he said.

Karp added that foreign investors would prefer to have 100
percent ownerships or to own at least 51 percent of the stake so
they can control the company.

He predicted foreign investors would renew their efforts to
enter the country's hotel market late this year in the event that
the country's political and social conditions are stable.

In its latest report Procon said that the occupancy rates of
five-star and four-star hotels in Jakarta during the January-
November period of last year dropped to 33 percent and 25 percent
respectively compared to 62 percent and 66 percent respectively
in the same period in 1997.

This has mainly resulted from the 28 percent decline in the
number of direct visitors to the capital who numbered only 1.1
million last year, a record low since 1993.

In the January-November period last year, the average room
rates dropped by 30 percent and 44 percent to $93 and $46 for
five-star and four-star hotels in Jakarta respectively.

With both room rates and occupancy declining, revenue per
available room tumbled by 63 percent and 71 percent for five-star
and four-star hotels respectively, the report said. (gis)