Property sector to get worst next year, REI says

JAKARTA (JP): The country's property sector, which had been severely bruised by the monetary crisis, could see a worse market situation next year, a speaker at a seminar said here yesterday.

Chief of the honorary board of the Indonesian Association of Real Estate Developers (REI) Moch. S. Hidayat said yesterday the country's property business would see its worst day next year due to the combination of high inflation, lower economic growth and a decrease in the public's purchasing power.

He said many weak property developers and contractors could go bust and be forced to lay off a large number of workers.

"From 800,000 to one million workers in property development will lose their jobs next year," he said at a seminar on nonperforming loans in the property sector and their solution, organized by Pusat Studi Properti Indonesia (PSPI) property consulting agency.

The seminar, which was opened by State Minister of Public Housing Akbar Tanjung, also featured REI chairman Edwin A. Kawilarang, property analyst Panangian Simanungkalit, economist Pande Radja Silalahi and president of Bank Tabungan Negara Tito Soetalaksana.

Akbar also said the monetary crisis, which had befell East Asian countries since July, had greatly affected the country's property sector, decreasing sales and forcing many developers out of business.

The minister estimated that only 1,660 of the 2,446 company members of REI would remain active next year.

He said the impact of the monetary crisis was especially felt by the developers of middle-upper income housing, which was in oversupply.

Developers of middle-lower income housing were less affected due to strong demand and they would continue to see a strong market next year, Akbar said.

"The oversupply in the middle-upper income housing market is too high. According to one source, the current housing available is enough to supply the market for the next three years," Akbar said.

Developers prefer to develop middle-upper income housing for the higher profit margin.

Panangian said although the property market had been depressed over the past several years, banks kept pumping credit to the property sector. Credit climbed to Rp 19.42 billion this year, up 21 percent from last year.

He predicted that credit to the property sector would further rise to Rp 20.4 trillion next year, which would be mainly used by developers to service their debt.

The credit funneled to the property sector had thus the potential to become nonperforming debt, and as such would further weaken the country's financial sector, said Panangian.

Hidayat said several foreign investors had showed interest in the country's ailing development companies and Indonesian developers also saw it as a solution to their current and future liquidity problems.

Panangian agreed with Hidayat, saying foreign investors could "help" the country's ailing developers by buying their shares in the capital market, through private placement, acquisition or others.

However, Hidayat said foreign investors were still reluctant to make buys now because they expected the shares to bottom out and also they were wary about the country's political situation.

Developers could also merge to improve their liquidity, Panangian said.

Developers should also cut their prices and intensify marketing to increase sales next year, he added. (jsk)