Property market guided by banking policy

JAKARTA (JP): Changes in the country's property market are due more to monetary policy than the riots that broke out in the city last July, an international property consultant said yesterday.

Craig Williams, a technical advisor to PT Procon Indah and a director of Jones Lang Wootton, said Bank Indonesia's directive that banks restrict lending to the property sector has helped slow down the construction of new properties.

"The directive in general is good in that it slows down construction, which gives the market a chance to catch up with the supply coming on stream in 1994 and 1995," Williams said of Jakarta's property market.

He said the market outlook in the next 12 months is good and that supply and demand will be balanced in 1997.

"Unfortunately it is a blanket policy covering the whole market, and it is affecting some areas where there is no need to slow down development, such as the housing sector, for example," he added.

High interest rates have been a problem for developers as has the availability of credit. As a result, banks have been asked to be more selective in their lending, he said, adding that the development of houses for end-users is still very important.

Williams said that it is not fair for Bank Indonesia to issue a blanket policy based only on the bad debts accumulated in the sector. Developers with feasible projects are being affected, he said.

He argued that the crux of the issue is not bad debts but credit control and credit worthiness. If banks take a serious look at the feasibility of projects and the strength of developers, then it should be no problem for them to extend credit.

If the developers have a problem, he said, the banks should step in, take over the projects and complete them in order to recoup their funds.

"But the problem in Indonesia is that it is difficult for banks to step in and take the property," Williams said. "It happens all over the world, but not here yet, and needs to happen soon."

Williams, however, disagreed with suggestions that Indonesia's property market, especially Jakarta's, was affected by the violence in the city which claimed at least four lives.

"The recent political rioting has been so high profile in the media over the last couple of months. Surprisingly, we have seen very little noticeable impact; the sentiment in the market is still good, from both domestic and foreign investors alike," he said.

In the office market, for instance, net take-up for the last three months totaled over 75,000 square meters, an increase of almost 50 percent over the previous quarter, said Susan Pranata, another director at Jones Lang Wootton.

Susan noted that during the last three years, total annual take-up of office spaces averaged at some 200,000 square meters. This year it is expected to reach 250,000 square meters.

Demand comes from foreign firms, joint ventures as well as local companies, especially those in the financial, telecommunications, manufacturing, trading and services sectors, she added.

Lucy Rumantir, a residential expert at Procon Indah, noted that the condominium market has also enjoyed strong demand and does not appear to have been affected by the July disturbances.

Net take-up of condominiums in the third quarter of 1995 was 481 units. Cumulative 1996 net demand to date is 949 units, or almost 83 percent of last year's annual net demand.

The cumulative demand for existing condominiums remains stable at approximately 78 percent. In the upper market segment, demand is healthy for good quality condominiums in good locations, Susan noted.

Jeffrey Hong, a retail expert at Procon Indah, said that the net take-up of retail space in the third quarter of this year was dropped due to lack of new stock.

He said precommitment levels for projects scheduled for completion this and next year remain high, representing at least 80 percent of the retail space on offer."

"That is a positive sign, I think, from the general perspective that people are taking a long term view of the market... In fact, it is a healthy market and has a lot of potential," said Williams. (rid)