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)