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)