Local property market may worsen over next two years
JAKARTA (JP): The outlook for Indonesia's property market will remain grim for the next few years because of the deteriorating economy and volatile political situation, property consultant PT Procon Indah and its international partner, Jones Lang Wootton (JLW), predicted yesterday.
Procon Associate Director Bayu Utomo said the health of the property market would worsen throughout 1998/1999 and that there was no indication of a bottoming out anytime soon.
"We have yet to hit the bottom so it is hard to determine when we will rise again," Bayu told reporters yesterday.
He said a turning point by mid-2001 was possible if the country implemented all its promised economic and political reforms on schedule.
Bayu said there would be limited new supply in all property sectors in the next three to four years, while demand would continue to contract.
Existing demand is only for companies seeking to cut costs by finding sites with cheaper rents in the rupiah, he said.
The decline would strengthen the position of buyers and tenants to determine conditions and prices, he said.
However, the plummeting prices have prompted many foreign investors to acquire commercial properties at knockdown prices.
Procon's consultancy department head, Ian David, said foreign investors, who left the market during the May riots leading to the change of government, have returned.
Investors are now anticipating a large sell-off of assets by banks who have been exposed to the large nonperforming loans of the property firms, David said.
"Investors with funds in excess of $1 billion to $5 billion are currently studying opportunities in Indonesia."
But there have yet to be any transactions between the investors and commercial property owners and banks because of the large gap in price expectancies between the negotiating parties, he said.
Discount
Investors want at least a 50 percent to 70 percent discount from the properties' 1997 U.S dollar-denominated value, while property owners and the banks "tend to chase the market down", he said.
A typical commercial property in Jakarta is worth $60 million, with a small handful worth between $150 million and $200 million, he said.
David estimated buildings in Jakarta and Bali totaling $3 billion to $4 billion could be sold off. These include offices, retail properties, apartments and hotels.
According to Procon, overall occupancy rates of the office market in Jakarta fell 3 percent to 84.4 percent over the quarter, making a 6.7 percent decline so far this year.
About 442,614 square meters of the commercial business district office space is now vacant.
Bayu predicted the occupancy rates would decline further by year end, as more companies downsize and relocate to cheaper office sites, factories or shophouses, while others stop operations.
Procon recorded no new sales transactions in the city strata title office market in this year's second quarter.
The cumulative take-up of existing strata title office buildings was 89 percent, down from 95 percent in the previous quarter. About 14,292 square meters of office space was returned to developers due to buyers defaulting.
The company said the drastic drop in the number of international passenger arrivals to Jakarta had severely depressed the hotel market.
The supply of international-standard (four and five-star) hotel rooms totals 13,067, as four new hotels started operating this year.
Hotels' occupancy rates dropped 42 percent to 35 percent over the first five months of the year. Average room rates fell 23 percent to $102, while the hotels' average profit slumped 55 percent to $35.
An associated director of JLW, Andrew Heithersag, said he predicted a massive and long-term oversupply in the hotel market.
But Heithersag said some U.S. and European investors and large real estate investment trusts were seeking to acquire hotels in Bali and Jakarta.
The May riots in Jakarta had reduced the available retail space by 10 percent, or 122,373 square meters.
Procon saw a 2 percent drop to 81 percent of average occupancy rates last quarter, and a 25 percent decrease in the average U.S. dollar rental for primary centers to $48.80 per square meter per month.
The retail department head of JLW Asia, Jeffrey Hong, said there would be negative demand for retail space as many retailers were closing outlets.
There would also be limited supply of commercial retail spaces in the next five years, as all projects had stopped, Hong added.
The riots also caused an increase of stock of homes in West and North Jakarta, the areas worst hit during the unrest.
Procon predicted the massive exodus of expatriates since the May catastrophe would result in increased vacancies of apartments and condominiums for the rest of the year.
This will contribute to a predicted 4 percent drop in average occupancy to 59 percent this year. (das)