Property market to remain sluggish
Property market to remain sluggish
JAKARTA (JP): The property market would remain sluggish until
1999 as a decrease in demand for space from local companies would
continue, a leading property consultancy firm said yesterday.
PT Procon Indah, in association with Jones Lang Wooton,
predicted in its January property outlook that demand in all
sectors would sharply decline throughout the country, except for
some tourist destinations like Bali where the weak rupiah was
expected to increase the flow of foreign tourists and boost the
island's retail and hotel sectors.
The company said the property marker was severely impacted by
the economic crisis, in addition to the regional currency
volatility, continued burden of private sector foreign
denominated debt, lack of decisive action by the government and
rising social and political tensions approaching the presidential
election in March.
"The rampant volatility (of the rupiah) and absence of a clear
government policy makes economic, and therefore property market
forecasting extremely problematical," senior technical advisor to
Procon Indah and director of Jones Lang Wooton Asia Phil Simpson
said at the launching of the company's property market report.
Company research department head Bayu Utomo said office space
demand in Jakarta's central business district had experienced a
record high of 337,360 square meters in 1997, but demand was
expected to decline 50 percent this year and would further
decline 15 percent in 1999.
"All sectors will experience a significant slowdown in
business. Insurance, oil and mining and telecommunications
sectors are expected to continue as the main demand generators,"
he said.
Multinationals would prefer to wait until volatility in the
currency decreases and to watch the performance of the Indonesian
economy before making any adjustments, Bayu said.
Company retail department head Jeffrey Hong said the Jakarta
rental market had experienced a slowdown in 1997 when annual
take-up was 109,586 square meters, or 34 percent lower than take-
up in 1996.
Hong said demand for retail space in Jakarta was expected to
decline at least 10 percent to 15 percent.
The demand for retail space is predicted to continue to
decline over the next two or three years, as retailers postpone
expansion plans and some retail businesses go bankrupt.
"We project the average occupancy rate to drop to 78 percent
by 2000 from the current level of 91 percent, with 1998 being the
most difficult year for this sector," Hong said.
Bayu said property owners would try to keep their customers by
offering discounted prices, but clients would press for rupiah-
denominated transactions to prevent losses amid the monetary
crisis.
He forecast that average office rent in the Jakarta central
business district would decline by about 15 percent in 1998 and a
further 10 percent in 1999 from the current level of US$13.30 per
square meter per month.
"Pressure from end-users for rupiah-denominated transactions
are high, as most generate their income in rupiah. Developers and
owners have high levels of foreign-denominated debt, making
acceptance of a change in rent revenue extremely perilous to
corporate survival," Bayu said.
Company technical advisor Ian David said many debt-ridden
property owners now offered their properties to foreign investors
and local rich people as they were anxiously searching for cash
to service their debt.
"Foreign investment institutions from North America, Europe
and the Middle East, and cash-rich local players are seriously
looking at investment opportunities, but are unlikely to act
until the government implements acceptable policies and actions
to restore confidence and stabilize the currency," David said.
He also said foreign investors were still reluctant to make
purchases because property owners still maintained an
unrealistically high property value.
David predicted foreign investors would renew their efforts to
enter the country's property market late this year, which he
expected to be a good starting point for the industry's recovery.
(jsk)