Property sector shows signs of life, promising brighter future
Property sector shows signs of life, promising brighter future
Burhanuddin Abe, Contributor, Jakarta
The property business in Indonesia has awoken from its deep
slumber. In fact, it is thriving.
Although other business sectors have not fully recovered from
the economic crisis that struck in 1997, the property sector is
enjoying robust growth.
Though it is today enjoying robust growth, the property sector
was actually accused by many observers and analysts as being
behind the economic crisis.
Their accusation was based on the fact that a large portion of
unpaid loans -- some Rp 75 trillion (about US$8.8 billion) worth
-- was in this business sector. Subsequently, most of the
country's major banks were crippled and the entire economy was
badly hurt for several years.
Not only small developers closed their businesses, but giant-
sized developers with huge financial resources of their own plus
strong support from banks succumbed to the worsening situation.
Since 1997, the property business was virtually dead, with no
new projects. Two years later, in 1999, there were no signs of
life in the sector and its capitalization remained at Rp 6
trillion, a far cry from the pre-crisis level of Rp 15 trillion.
About 800 developers in the country went bankrupt and became
almost permanent "patients" of the Indonesian Bank Restructuring
Agency.
In 2000, however, a brighter picture began to emerge. The
property sector recorded a better performance with total business
of Rp 10.2 trillion. With major cities like Jakarta and Surabaya
as main motors, most of the country's cities were alive again
with new property development, all of which absorbed a huge
amount of manpower.
The following years saw further improvement. Although some
developers adopted a wait-and-see attitude prior to the recent
general election, the property business as a whole was not much
affected. The latest figures show that the sector did a colossal
Rp 46 trillion in business in 2003, an amazing surge from the Rp
26 trillion in 2002.
One of the country's leading property consultants and research
companies, Procon Indah, reported that major players in the
property business were back on their feet and active in numerous
developments nationwide.
In the capital of East Java, Surabaya, the Pakuwon and Ciputra
groups were at the forefront. The country's second largest city
has become a lucrative location for leading developers, which
have put huge amounts of money into major projects in the city
and its surrounding areas.
In Bali, Trade Point Legian is involved in several major
projects. And four large developers, Panakkukang Mas, Lippo,
Bosowa and Bukaka, are competing in the South Sulawesi capital of
Makassar.
The capital Jakarta is enjoying an all-time record in project
development. Procon reports that condominiums, malls, high-end
residences and apartments have led the way since 2002. Some of
the projects, most of which are strategically located, are
enjoying pre-sales, meaning that customers are rushing to pay
booking fees before the construction is done.
Jakarta, an 11-million-strong metropolis, has almost every
major developer fiercely competing in every property segment.
Among the leading names are Sinar Mas, Agung Podomoro, Ciputra,
Duta Pertiwi, Triamanaya, Pakuwon, Artha Graha, Sugianto Kesuma
and Jan Darmadi.
While being rather cautious due to the general election, which
may affect business here to a certain extent, many analysts
predict that the property sector will continue to flourish. The
Center for the Study of Indonesian Property expects the sector to
continue its growth with total capitalization in 2004 estimated
at Rp 51 trillion, about 12 percent higher than the previous
year.
According to property business analyst Panangian
Simanungkalit, the relatively smaller growth this year is mostly
due to the fact that most commercial projects, such as malls,
trade centers, office buildings and shop-houses, were started in
late 2002 and will be completed this year. Therefore, most of the
developers funds are tied up in those projects.
They also have to focus their efforts in marketing the
projects, and not just sell to buyers who do not occupy or open
their shops and offices because vacant units create a negative
image for developers and an entire building. A few developers are
experiencing the agony of bad PR as their newly built trade
centers, office buildings or malls gleam on the outside but are
almost totally deserted when you set foot inside.
According to Panangian's data for 2004, malls and trade
centers are the dominant subsectors with the largest portion of
investment at Rp 26.6 trillion. The number two subsector is
residential at Rp 9.8 trillion. Apartments and shop-
houses/offices are next with Rp 6.5 trillion and Rp 5.4 trillion
of capitalization, respectively. Hotels are near the bottom of
the list at only Rp 1.06 trillion. The lowest figure, Rp 1
trillion, goes to office buildings and town houses.
Panangian said that economic factors contributed to the
healthy growth of the property business. A stable rupiah, an
inflation rate of between 5 percent and 5.8 percent, the central
bank's low rate for its certificates as well as banks' low
interest rates are some of the macroeconomic indicators he cited.
Higher consumer purchasing power also help the property sector,
he said.
Political parties, with their huge funds, estimated at Rp 15
trillion, will also increase the amount of money in circulation,
which in turn boosts spending power.
"Compared to various businesses, one can safely say that this
time it is the property business with its huge investment that
will move the wheels of the country's economy and assure a
revival," said Panangian.
Ciputra, a leading developer, also believes in the potential
and bright future of the property business. He said that this
year and next year will be similar to the pre-crisis era, with
the sector peaking in 2007 after which it may decline slightly.
It is like a seven-year property business cycle, he concluded.