Low demand for apartments predicted for next year

JAKARTA (JP): Apartment sales were dealt a serious blow by simmering unrest in Jakarta over the past two months, with the market unlikely to pick up in 1999, a property consultant said on Monday.

Procon Indah, in association with Jones Lang Wootton, said in its biweekly report that demand continued to slow down during the third quarter of the year. A mere 19 transactions took place between July and September -- 63.5 percent down on the second quarter of this year.

"Some potential buyers backed out of decisions to purchase upper priced condominiums and instead bought residential property overseas due to increased social and political volatility (in Indonesia)," the report said.

The unavailability of mortgage facilities due to high interest rates also contributed to the further slump in demand.

By the end of September, 7,160 apartment units remained unsold in Jakarta. Of these, 4,500 units were in the middle to low price range, classified as below Rp 5 million (US$666) per square meter. Buyers of this type of unit usually come from middle income groups and are dependent on mortgage financing to make a purchase.

Falling demand has forced most property owners to cut the asking price when they put apartments on the market.

The average price of apartments in prime residential areas excluding the Central Business District (CBD) dropped 9 percent in rupiah terms over the third quarter, then by a further 15 percent in October and November.

In U.S. dollar terms, prices increased by 25 percent due to the strengthening of the rupiah. However compared to 12 months ago, U.S. dollar prices are down by 65 percent.

In the Central Business District, apartment prices stabilized in rupiah terms during the third quarter, but dropped by 7 percent during October and November as a result of increased social and political tensions in the country.

In dollar terms, CBD apartments rose by 37 percent in price on the previous quarter. Prices are now 64 percent less than they were in the third quarter of 1997.

Procon said that demand for condominium units was unlikely to pick up in 1999 given the major political events scheduled for next year.

Procon also said that 1999 would remain a bleak year for Indonesia's economy.

It forecast that gross domestic product (GDP) would continue to shrink in 1999, possibly by between two to four percent, while inflation would fall to 20 percent per annum and benchmark interest rates would drop to 20 percent by the end of the year.

These improvements would be insufficient to stoke up demand in the apartments market until late in 1999, the report said.

"Demand for condominiums is expected to remain low until at least the fourth quarter of 1999," it said.

The company also predicted that the number of unsold units would rise as buyer defaults increased, especially in complexes outside the CBD. It forecast that prices would drop further as a result. (rid)