Property is 'good stake in times' of high inflation

JAKARTA (JP): Investors should consider property as a safeguard against the declining value of their money in times of high inflation, property consultant PT Procon Indah has advised.

"Historically, in any country or economy, the best returns are secured by property as a fixed asset," the firm said in a statement.

The associate of Jones Lang Wootton expects the nation to experience high inflation this year.

"For this example, we have chosen a 30 percent to 40 percent inflation rate in the property sector," said Lucy Rumantir, director of the firm.

She said the figure was based on apartment sales prices. These ranged from US$950 to $1,100 per square meter prior to the crisis, but have now fallen to about Rp 2 million ($200) per sqm.

"So inflation of 30 percent to 40 percent is considered conservative enough."

The economic crisis, prompted by the sharp depreciation of the rupiah against the U.S. dollar, has forced the government to adhere to strict IMF bail-out programs. In a revised budget, the government projected zero percent economic growth and an inflation target of 20 percent for the 1998/1999 fiscal year.

Procon Indah outlined the potential benefits of betting on property by comparing it with a time-deposit investment.

An investment of Rp 1 billion in a time-deposit with a 25 percent interest rate would lose a quarter of its value during a period of 40 percent inflation, it said.

Conversely, investment in property would register an appreciation in value of more than 40 percent, particularly if the property could be leased.

"Clearly, our clients are substantially better off by investing in discounted prices now before inflation takes control," Procon said. "Cash money should be invested as soon as possible in quality real estate."

Other analysts do not appear as positive.

Bears warn the crisis and the resulting environment of tight liquidity will significantly reduce property sales and leasing activities.

This is turn will provide little room for property investments to appreciate in value.

"It may take up to three years for the sector to revive," said a property analyst at a securities firm.

He said property, already stuck in the doldrums for more than a year before the rupiah began to plummet in the middle of 1997, had been the worst hit of all sectors. (08)