Low and mid-priced houses sell like hot cakes

Low and mid-priced houses sell like hot cakes

Ari Darmawan, Contributor, Jakarta

After the onslaught of the economic crisis that hit the
country in 1997, starting in 2000 the property business
significantly picked up again.

In the primary housing sector -- meaning new houses -- the
survey done by the Center of Studies of Indonesian Property
(PSPI) showed that sales of new houses in 2002 increased by some
11 percent, from 99,500 units the previous year to 110,400 units.
Most of the increase was due to growth in the very basic house
(RSS) market, from 9,000 units in 2001 to 12,500 units, an
increase of 39 percent.

This happy story is not true for every developer, as not all
have devoted their resources to cater to current demands in this
particular business due to a lack of sufficient funds. It is not
surprising because most depend on loans from banks, invariably at
high rates of interest. Additionally, an increase in the price of
land and construction materials is another major hampering
factor.

The association of real estate developers -- Real Estate
Indonesia (REI) -- has done its part to help its members by
lobbying the government for long-term funds to be used in the
housing sector and the reduction of administrative costs, such as
house building permits, etc. so that price tags can be kept
reasonably low.

Given the financial predicament of smaller developers, it is
understandable that today's bright outlook is more enjoyed by the
major players, such as Ciputra Group, with real estates Bumi
Serpong Damai, Citra Raya, Bintaro Jaya and Citra Grand; Sinar
Mas Group, with Kota Wisata, Legenda Wisata and Kota Bunga; and
the Lippo Group with a number of estates among which are Lippo
Karawaci and Lippo Cikarang. Marketing aggressively, the
country's media are filled with their advertisements. Most of
their residential products are mid-priced: a maximum of Rp 200
million per unit. For the upmarket segment, rather than building
luxury houses, they generally make ready-to-build lots available.

Developers with limited capital tend to build lower-priced
houses, such as the RS Plus and Type 36. Some are even creative
enough to include in these modest houses features that
are normally found in middle-class houses. These "upgraded" types
are then sold at almost twice the price. This segment is quite
lucrative as the country's economic crisis has increased the
number of people who have been forced to buy cheaper property.

Growth in business property is also taking place in the
secondary housing sector -- secondhand houses -- with property
brokers taking a major role. Tirta & Partners -- a property
consultant -- announced that of 8,538 transactions in the city
3,359 have been carried out by agents or property brokers.

The relatively high sales of secondhand houses, or the
secondary housing segment, are mostly based on location,
particularly strategic or favored locations. Price is also
another factor as secondhand houses are normally 5 percent to 20
percent cheaper than new houses. Naturally, with neighbors
nearby, one does not have to be a pioneer or reside in isolation
in a brand-new residential estate.

Sales in the secondary property segment in 2002 reached Rp 8.1
trillion, and boosted the number of property brokers in the
country, from 130 in 2001 to 250 in 2002, as noted by the
Association of Indonesian Real Estate Brokers (AREBI).

Association chairman Tirta Setiawan said that today almost
anyone can become a property broker as many "traditional"
middlemen are already acting like professional brokers without
realizing that to succeed and serve clients properly they have to
be more skillful and knowledgeable.

An analysis by PSPI, showed that more than Rp 6 trillion in
sales -- almost 75 percent of the total Rp 8.1 trillion-worth of
secondary property sales -- were made via the country's three
major brokers: Ray White (Rp 2.12 trillion), Era (Rp 2.3
trillion) and Century-21 (Rp 1.68 trillion). All three have seen
an increase of 10 percent to 13 percent in comparison with their
sales for last year and about 75 percent of their revenue
originates from transactions in the secondary property segment,
with the rest coming from commercial estates.

For this year, all three property brokers are optimistic about
further growth in their sales (refer to Table Two) and their
targets seem to be quite realistic in view of the current
economic situation, which is relatively improved. As developers
have recently opted to use the services of property brokers
rather than recruiting their own marketing staff, the country's
major brokers are also including sales of new property, or the
primary property segment, in their portfolio.

Next to these three major brokers, in the Greater Jakarta area
can also be found other property brokers offering professional
services: Etika Realty, Gading Graha, M-Pro, Chika Properti,
Bukit Gading Realty, Bali Realty, plus some foreign agents, such
as Coldwell Banker, L.J. Hooker and Raine & Horne.

So, today, for the purchase of a brand-new or secondhand
house, you have more than one choice: dealing directly with the
developer or with various professional property brokers.