Property market suffering from domestic uncertainty

Property market suffering from domestic uncertainty

JAKARTA (JP): The Jakarta property sector fared poorly over
the first three months of this year, battered by an economic
downturn and uncertainty on the social and political fronts.

The bad news was outlined in a quarterly report issued by the
property research consultant arm of PricewaterhouseCoopers (PwC).

Jay Smith, a technical adviser for PwC, said on Wednesday that
following improvements last year that hinted at recovery, the
sector had taken a turn for the worse.

"At the end of last year we saw that there were signs of
improvement in the sector, which we thought would further pick up
during the first three months of this year, but did not," he said
on the sidelines of a media conference here.

The director of the PwC property group, Katherine Harberd,
said most property sectors were flat, construction limited,
demand low and rents relatively static during the first quarter
of the year.

In the office sector, some 30,600 square meters of new
lettable space came into the market during the quarter, bringing
the total office stock to about four million square meters, of
which 93 percent is lease, 6 percent strata title and 1 percent
owner occupied.

Demand however was lower than last quarter, decreasing 0.2
percent to 76.2 percent between January and March this year, Sari
Wulaningsih, a PwC property group executive, said.

"There will be no major construction projects started this
year due to the continuing oversupply of office space while
demand remains flat," she said.

There will also be no pressure on rents to increase in the
near future due to the flat demand. However, a hike in
electricity rates will cause an increase in service charges.

For the Jakarta retail market, however, demand remained high
during the first quarter of the year, with occupancy rates
reaching 96.5 percent, the result of few new construction
projects in the sector.

"High occupancy and demand might provide an opportunity to
recommence on-hold projects if financing can be found," Sari
explained.

Funding from local banks is necessary for the retail market to
improve significantly, Jay Smith observed, but he has yet to see
signs that financial institutions are supporting the development
of the sector.

"High demand and occupancy should trigger a response to build
more retail outlets, but with the uncertain conditions this has
not happened," Smith said.

Sari said that with the improved confidence in the retail
market, most shopping centers increased their fixed exchange
rates by between 4 percent and 16 percent, while some increased
their monthly service charges by US$1 per square meter.

Landlords, confident of demand, are also being more
discriminating in their tenant selection and mix to improve the
appearance and management of their shopping centers, she said.

"They also tend to maximize the use of space by converting
corridors and underutilized areas into lettable space," Sari
added.

In the apartment sector, rents showed no significant movement
during the quarter and there was minimal demand, Smith said.

The 10 percent to 20 percent increase in sales taxes for
luxury apartments of at least 150 square meters further reduced
buyer interest, he added.

The total stock of apartments reached 9,800 units in the
Central Business District and about 19,200 units in secondary
areas.

Residential estates in Greater Jakarta remained stagnant with
no new major residential developments in the first three months
of the year.

Land prices remained steady but continued to vary according to
location. The highest prices were seen in Bogor and Cibubur at
between Rp 600,000 and Rp 1.7 million per square meter, though in
some West Jakarta residential estates prices ranged from between
Rp 1.2 million and Rp 2.5 million a square meter.

Harberd said she had expected the hotel sector to bounce back
over the first quarter, according to traditional annual trading
patterns. "This didn't occur," she said.

Some hotels that were expected to enter the market in the
first quarter postponed their operations until the second and
third quarters. This left the total stock of hotel rooms in
Jakarta at 20,700 rooms, consisting of 8,400 rooms in five-star
hotels, 7,500 rooms in four-star hotels and 4,800 rooms in three-
star hotels.

Another 660 rooms are expected to enter the market later in
the year with the Alila Hotel, the FM1 Hotel and the Sentral
Mutiara (JW Marriott) Hotel.

Hotel occupancy rates decreased over the quarter by between 1
percent and 5 percent from the previous quarter. The occupancy
rate averaged 40 percent across the sector. (tnt)