Thu, 27 Apr 2000

Property sector 'on road to recovery'

JAKARTA (JP): The property sector, especially housing, will recover to its precrisis level next year as sales this year are predicted to double from 1999, leading property developer Ciputra said on Wednesday.

Steadily falling bank interest rates are fueling a robust increase in property sales this year, Ciputra said on the sidelines of a seminar on e-commerce.

"With interest rates already falling to as low as 12 percent, an increasing number of people now prefer to buy houses."

He said that even sales of upmarket housing with prices of Rp 1 billion (US$120,000) or higher were rising slowly but steadily.

Ciputra, whose property interests span housing, shopping centers, hotels and golf courses, said his company's sales peaked in 1997.

The regionwide economic contagion struck the country in August 1997 but its full effects were only felt in 1998 when the economy contracted almost 14 percent.

The property sector collapsed in 1998, leading many firms to default on their debt payments and forcing banks to transfer the handling of heavily indebted developers to the Indonesian Bank Restructuring Agency (IBRA).

Ciputra said that after two years of languishing in the doldrums, the property market was bullish amid strengthening consumer confidence.

"Many people who held off for two years on plans to purchase housing and invested their savings mostly in time deposits now feel it is time to enter the property market," he said.

Ciputra predicted that demand for small houses would grow considerably higher than medium and upmarket ones.

He said house ownership loans, besides car loans, were now the most popular among most of the banks which resumed lending. Mortgage rates also have declined to as low as 20 percent.

Another property developer, Kosmian Pudjiadi of the Association of Indonesian Real Estate Companies (REI), shared Ciputra's upbeat forecast, saying the property market showed a strong recovery since early this year.

Kosmian said the housing market also was reinvigorated by the decision of developers to desist from raising prices from precrisis levels while the market was without new supply.

"The market expansion would be even faster if the government could speed up the restructuring of developers' debts," he added.

Although property expert Panangian Simanungkalit was similarly positive about the housing market, he expected full recovery only by 2004.

Housing sales -- the main indicator of the property industry -- would increase to some 90,000 units this year from about 55,000 units last year, he said.

"The housing market peaked in 1997 when sales reached 220,000 units. But it would take another three years before the market will fully pick up to the 1997 level."

He said the government needed to restructure the property industry and control new supplies by restricting the issuance of new location permits.

He predicted the industry would be demand-driven instead of supply-driven as it was until 1997.

"Before the economic crisis, the market was dominated by developers (suppliers) but this time around demand will dictate developers."

Simanungkalit recommended the government grant tax incentives to foreigners to soak up the excess supply in the upmarket housing market.

He stressed the need to weed out unviable developers from market by letting them go bankrupt. (bkm)