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.