Jakarta's property market outlook for next year

By Benget Simbolon Tnb.

JAKARTA (JP): Property analysts differ in their outlooks for next year. Many are bullish about the property business, others are pessimistic, but they all agree that the general election in May poses a big question mark.

"I think for the next three to four months the market will be quiet as people wait until the general election. Then a growing demand for property stocks will fuel the business," Craig Williams, a technical advisor to PT Procon Indah, a property consultancy firm, told The Jakarta Post.

Ciputra, the property tycoon who controls the big developer Ciputra Group, noted that it was very difficult to make predictions in the property business. "The year 1997 is a year of uncertainty," he said.

The Econit Advisory Group said that the government regulation which allows foreigners to buy houses in Indonesia and the mortgage law that was approved by the House of Representatives a few months ago will help strengthen the property market next year, particularly for middle- and upper-class houses.

But Panangian Simanungkalit, the chairman of the property consultancy PSPI Research, said the property business would be adversely affected by financial and legal problems, oversupply and weakening demand.

Weakening demand is partly a result of perceived political uncertainty, he said, adding that banks are likely to reduce their exposure to property by 41.67 percent from Rp 12 trillion (US$5.17 billion) this year to Rp 7 trillion next year.

He predicted that problem loans in the property sector would increase 6.67 percent to Rp 5.6 trillion next year from Rp 5.25 trillion this year.

"The monetary authorities will tightly control new bank credits to the property sector," he said.

Panangian told The Post that the legal problems currently faced by developers were caused by the government's recent decision to stop issuing new land licenses for housing projects in the greater Jakarta area. Some 625 developers, or 25 percent of the country's 2,500 developers, will go bankrupt next year, he predicted. However, he said, the property sector could still grow 11.1 percent next year.

Housing

According to the Econit Advisory Group, the total supply of luxury houses will drop to about 110,000 units in 1996, from about 145,000 units in 1995.

The number of middle-class houses will drop from 142,000 units 1995 to about 108,000 units this year, while the number of lower- income houses will drop from around 130,000 units in 1995 to about 102,000 units in 1996.

The supply is expected to increase next year to meet the demand for middle- and upper-income housing.

National demand is estimated at 780,000 houses per year, of which 15 percent is in Jakarta alone.

The government's decision to stop giving land licenses to developers in the greater Jakarta area will mostly hit small- scale developers, and could become a boon for the big developers.

Econit predicted that at least 21 major projects in Jakarta (see table) -- including Bumi Serpong Damai, Alam Sutra, Lippo Cikarang and Tiga Raksa, all controlled by big developers -- will benefit from the ruling.

Office space

PT Procon Indah said the supply of office space would increase 37 percent, or 426,000 square meters, to about 2.5 million square meters for 1996.

Next year, the supply will increase 9.6 percent to about 2.8 million square meters.

Office rental rates are predicted to be stable at an average of US$13 per square meter per month in the central business district (CBD) around Jl. Thamrin, Jl. Sudirman, and Jl. Gatot Subroto and Kuningan. Outside of the CBD, rates will be between $8 and $11 per square meter per month.

The occupancy rate is expected to decrease from 90 percent this year to 87.5 percent next year. The firm also predicted an oversupply of office space despite high demand in 1997.

More companies are expected to relocate from prime areas to non-CBD areas, such as Jl. T.B. Simatupang in South Jakarta, in a move more prompted by lifestyle requirements than worsening traffic in the prime areas.

Shopping centers

The property consultancy First Pacific Davies Indonesia said that the supply of retail space by the end of 1996 would increase 21.8 percent to 1.1 million square meters. Next year, the supply will increase to almost 1.3 million square meters.

The retail market will be oversupplied over the next two years as 358,000 square meters of retail space are scheduled to come on line in 1998. The company believes, however, that the oversupply will only happen for certain types of retail space.

International standard shopping centers with sound fundamentals should continue to perform well. The fundamentals include a sufficient population with an ability to spend, an accessible site, a good design, an appealing mix of tenants and capable management.

Scarce financing for construction is unlikely to ease in the near future and could delay development proposals, deferring future supply.

Shopping centers will see their occupancy rates drop 2.5 percentage points to 90 percent next year.

Apartments

Despite increasing demand, there will be an oversupply of apartments next year. Total supply will reach 6,121 units next year, with an occupancy rate decreasing from 79 percent this year to 75 percent in 1997.

According to PSPI, more condominiums are likely to be converted into apartments next year, increasing the supply of apartments. But the firm said that the additional supply will be absorbed due to strong demand for apartments in the central business district.

Excess supply will force rental rates down from the current $30 to $22 per square meter per month.

Condominiums

According to PSPI, the condominium market will see an oversupply and weakening demand next year. As a result, prices will drop from the average $1,800 per square meter in prime locations and from the average of $750 per square meter.

Total supply is expected to reach 17,615 units next year.

Total sales will drop from the current 85 percent of the supply this year to about 60 percent next year.

Industrial estate

According to PT Procon Indah, the total supply of industrial estate space will increase to 3,625 hectares this year and further expand to 4,115 hectares next year. This year's demand dropped almost 40 percent to 285 hectares from 470 hectares last year, but it is still higher than the average demand of about 200 hectares.

Demand next year is expected to range from between 275 and 300 hectares. The cumulative take-up rate next year is likely to decrease three percentage points to 78 percent. But the government's effort to relocate manufacturing firms to industrial estates located mostly around Jakarta -- Karawang, Bekasi, Serang and Tangerang (West Java) -- is expected to increase the cumulative take-up rate.

Table: Name of developers and projects

No. Developer Land area Project name Location

(hectares) -------------------------------------------------------------- 1. Argo Manunggal 700 Alam Sutra Tangerang 2. Ciputra Group 1,200 Citra Indah Bogor 3. Ciputra Group 2,000 Citra Raya Tangerang 4. Ciputra Group 800 Pantai Indah Kapuk Tangerang 5. Ciputra Group 2,000 Puri Jaya Tangerang 6. Consortium 6,000 Bumi Serpong Damai Tangerang 7. Consortium 33,000 Jonggol Asri Bogor 8. Consortium 2,000 Kota Legenda Bekasi 9. Consortium 1,700 Lido Lakes Resort Bogor 10. Consortium 570 Manggarai Jakarta 11. Consortium 2,700 Pantura Jakarta Tangerang 12. Consortium 550 Rancamaya Bogor 13. Lippo Group 5,000 Lippo Cikarang Bekasi 14. Lippo Group 2,600 Lippo Karawaci Tangerang 15. Lippo Group 2,000 Royal Sentul Bogor 16. Metropolitan 5,400 Kota Baru Cikarang Bekasi 17. Modern Group 770 Kota Modern Tangerang 18. Pembangunan Jaya 2,300 Bintaro Jaya Jakarta 19. Salim Group 8,000 Kapuk Naga Tangerang 20. Summarecon Agung 1,700 Gading Serpong Tangerang 21. Tigaraksa 3,000 Tiga Raksa Tangerang -------------------------------------------------------------- Total area: 83,990

Source: Econit Advisory Group