Local property market may worsen over next two years
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)