Property market severely hit by economic crisis

Property market severely hit by economic crisis

JAKARTA (JP): The excessive depreciation of the rupiah and
high interest rates have made the local property market
significantly vulnerable, an analyst and an industry executive
said yesterday.

"The property market has been dealt a triple blow," property
consultant PT Procon Indah, in cooperation with Jones Lang
Wootton, said in a statement yesterday.

The first blow came from the sharp depreciation as foreign
denominated debt affected many large developers, Bayu Utomo of
Procon Indah said.

Developers with large foreign debt, but with revenue in
rupiah, faced a 50 percent increase in principal and interest
costs, he said.

The second blow, he said, was from high interest rates; they
penalized rupiah-financed developers as banks automatically
adjusted their lending rates, even to existing debtors.

And the third blow came from a weakening demand for property,
Bayu said.

"Occupants and buyers, feeling the effect of higher inflation,
higher interest rates and an erosion of wealth, have begun to
curb their acquisition or expansion plans," he said.

He projected that the new property supply would decline in
coming years because developers had delayed or canceled their
projects altogether.

"This is a positive factor as it will potentially avoid what
was to be a more serious oversupply problem due to current
economic uncertainty," he said.

Agusman Efendi, secretary-general of the Indonesian
Association of Real Estate Developers (REI), said many property
firms, especially small and medium-sized ones, had been forced to
cease operations this month.

"And if the high (interest) rates continue over the next two
or three months, some property companies may collapse," Agusman
told Reuters.

The association currently groups around 2,000 property
companies, with 80 percent of them engaged in the construction of
low-cost housing.

Agusman said most REI members depended on bank loans to
finance property projects, particularly state-owned PT Bank
Tabungan Negara (BTN) which specializes in financing low-cost
housing projects.

Agusman said with most banks charging more than 35 percent for
construction loans and 30 percent for mortgages, most property
companies -- especially small and medium-sized firms -- would
find it difficult to continue to develop.

He said the gloomy outlook was exacerbated by the rising cost
of construction materials, particularly imported items paid for
in U.S. dollars.

The value of the dollar has risen by more than 50 percent
against the rupiah since the beginning of the year.

It stabilized at about Rp 3,550 to the U.S. dollar on Thursday
after the government said it would seek assistance from the
International Monetary Fund and other organizations to steady the
currency and restore market confidence.

Agusman said some large publicly listed property companies
were expected to weather the monetary crisis better than smaller
ones because listed companies could generate cash from
shareholders.

But property analysts in Jakarta said most investors were
staying away from property stocks.

They also said some listed property companies faced serious
cash problems from high interest rates and a large foreign
currency exposure because of the dollar's gains.

An analyst with a foreign securities firm said property stocks
on the Jakarta Stock Exchange were the hardest hit after banking
stocks. Property share prices had fallen around 50 percent since
early July.

Analysts said property companies had also been hit by the
recent government regulation prohibiting public banks from
providing loans for land purchases.

The regulation followed concerns that banks might suffer
overexposure in the property sector. (rid)