Property stung by monetary woes
Property stung by monetary woes
Property has a dubious distinction as one of the first
economic sectors to be badly battered by the currency crisis. The
Jakarta Post reporters -- Budiman Moerdijat, Devi M. Asmarani,
Dwi Atmanta, Edith Hartanto, IGN Oka Budhi Yogiswara and Stevie
Emilia -- look at the shell-shocked sector. Related stories
appear on Page 2, 3 and 9.
JAKARTA (JP): Early this year, 31-year-old private company
employee Bimo and his wife decided to buy a house where they
could raise their newborn daughter.
The couple was set to obtain a housing loan to pay for a
medium-sized house in the Jakarta suburbs. Their plan seemed to
be going smoothly -- with interviews set up with several banks --
until August.
Their hopes were torn asunder. The rupiah's value has dropped
by over 35 percent against the U.S. dollar since July, causing
the government to impose a tight money policy and credit crunch.
Money became scarce and interest rates shot up almost overnight.
They are faced now with a situation in which getting a loan
would be unwise -- if not unaffordable -- and credit allocation
for housing has been slashed.
"I'll have to forget about buying a house for while, because
there is no way we could afford paying back the loan now," Bimo
says.
Many others share Bimo's bleak position, forced to postpone
the best-laid plans as the crisis eats a big chunk out of their
incomes.
Herman Tjahja, 28, has had to put off his marriage because
soaring interest rates shattered his dream to buy a house in
Bekasi, a township east of Jakarta.
Herman was told before the crisis that he could buy the house
for Rp 80 million (US$22,857), with a 21 percent interest rate.
That translated into paying around Rp 1.6 million every month.
The plan was dashed when the interest rate surged to 40
percent, raising the monthly payment to about Rp 2.8 million.
"That's crazy, I can't possibly afford it right now," he says.
"My salary is small and it does not look as if I will get a
pay rise."
What is preventing them from getting one of their most basic
needs -- a roof over their heads?
The answer is the skinning of the property sector.
Since the devaluation of the Thai baht in July triggered
contagious speculative attacks on currencies across the region,
the property sector in Indonesia has become the nervous talk of
the town.
Simply put, it is an economic ulcer which has been well
covered by many superficial stopgaps, but which has now become so
acute that it can no longer be concealed.
The crisis has lifted the veil off the most recklessly managed
industry in the Indonesian economy.
Property analyst Panangian Simanungkalit can reel off a list
of the many problems plaguing the country's property sector.
Top of his list is the speculative tendency of developers,
reflected in their irresponsible funding and investment
structures.
Developers are notorious for their reckless habit of borrowing
short-term loans for long-term investments.
Spending habits of the property sector in Indonesia, like in
Thailand, can be compared to those of a grasping member of the
nouveau riche.
"Developers felt they had to fulfill their insatiable desires
by building more projects, not realizing the risky consequences,"
Panangian says.
When the loans, most of which are from foreign lenders, began
maturing and increased by almost three times the previous value
because of the rupiah's drop against the dollar, the companies
began gasping for a breath of liquidity, which by now had become
scarce because of the credit crunch.
Lavish spending, combined with the current monetary turmoil,
is fanning fears a property crash is lurking around the corner.
"A property crash is inevitable even in big countries such as
the United States, Japan and Thailand," he says.
He is careful to draw a distinction, believing the local
property market has collapsed but has not crashed.
One of the indicators of a property crash is a nationwide free
fall in prices of properties by 40 percent or more, which has yet
to happen.
Even so, there are cases of drastic cuts in property prices.
In Jakarta, several houses and plots in the Bintaro suburb,
South Jakarta, are being offered for less than 50 percent of
their usual prices.
At a recent home exhibition conducted by the Indonesian Real
Estate Association, many houses were up for sale at around 35
percent less.
But the huge markdowns do not necessarily send consumers
rushing into the property sector.
The rupiah slump caused inflation and forced people to tighten
their spending belts, while the credit crunch hiked lending rates
and made housing and property credits scarce.
Senior marketing head at Bonavista Apartments, Jenny Jethnani,
admits meeting sales targets has become tough.
"We used to sell about six to seven apartments a month before,
now we can only sell two to three."
Expatriates are the most frequent residents of apartments, and
Jenny says the crisis has made foreigners reluctant to work in
the country, thus slowing sales.
Marketing manager of property brokerage Era Prima, Markus
Suryawan, says his business has been severely affected.
"We have a lot of customers who have put off transactions
because of the increasing interest rates."
He reports 10 to 15 transactions are delayed each month, with
value between Rp 200 million and Rp 5 billion.
Shop-houses have not been spared. According to Home Property
Trade owner and director Johan Bukit, sales of the units have
dropped by about 30 percent since the crisis began, from around
Rp 10 billion a year.
The only survival tactic is to sell the shop-houses below
market prices, he says. "Now we negotiate on the spot, just like
an auction."
Many of those who have bought property and are now making
payments find themselves economically overextended, as some
housing loans are subject to floating interest rates after the
first year.
Housewife Sarah says payments on her house, located in a plush
South Jakarta suburb, has swollen by an extra Rp 1.75 million to
about Rp 6 million due to steep interest.
The property business follows a determined cycle.
At some point, developers invest excessively in property,
sporadically building mega projects. This will lead to a glut.
Property consultant PT Procon Indah predicts the property
sector will suffer from lower demand growth next year, as
consumer purchasing power continues to decline.
Even property king Ciputra, owner of the Ciputra Group, admits
the industry is beset by problems.
"Property... has cycles, and now it is facing an oversupply,"
he was quoted by Panji Masyarakat weekly as saying.
This is hampering further development of many projects. Plans
for the new projects must be put on the back burners, and some
current projects have been shelved.
Panangian forecasts about 40 percent of some 2,500 existing
developers in the country will either go bankrupt or be forced
into liquidation.
Many of these would be small to medium developers, but large
developers would be hurt as much of their funding comes from
foreign loans, he says.
Project delays and cancellations will cause high unemployment
in property and construction.
Some 40,000 construction workers in Jakarta have reportedly
lost their jobs due to postponement of projects. The Indonesian
Real Estate Association estimates about 192,000 workers are
threatened by unemployment because of the decline.
Others claim that as many as two million casual laborers --
mostly migrants -- who have relied on employment from
construction projects in Jakarta have been without work for many
weeks.
Along streets in West Jakarta, these workers, who commute from
nearby towns daily to work at construction sites in the city,
swarm in packs as they wait to be picked up for jobs. The harsh
reality is that there are fewer trucks picking them up.
Property and construction-related sectors have also had to
bear their share of troubles from the crisis.
Head researcher of independent social research organization
Akatiga, Yuni Thamrin, says small-scale producers of bricks and
roof tiles are suffering from declining sales, and many are
anxiously awaiting late payments from cash-strapped developers.
"These companies have no way of getting capital to continue
their business," Yuni says.