Rates, tax and credit affect property market
Rates, tax and credit affect property market
JAKARTA (JP): Increasing interest rates, the imposition of a
luxury tax on property sales and the government's call for
limited credit expansion will affect the property market this
year, a property consultant said.
Craig Williams, a director at the international property
consultant company Jones Lang Wootton Asia, told journalists
yesterday that the sector most hit would be the residential
market.
"If you see interest rates are increasing, that would put
definite burdens on a particular market, especially the
residential market, as people rely on loans to finance a portion
of the purchase price of a residence," Williams noted.
Since November, when the U.S. Federal Reserve raised interest
rates, domestic interest rates have increased by one to two
percent.
Economist Mari Pangestu predicted that domestic interest rates
will increase by at least two percent and at most by four percent
until the third quarter of this year.
Williams said that, besides the high interest rates, the
introduction of a luxury tax on property sales, beginning this
month, and the government's policy to limit the growth of bank
lending to 19 percent this year will cause the property market to
go sluggish.
"The introduction of a luxury tax would be an additional
burden for people buying residential property," Williams said.
"If we see credits tightened for the next few months, it will
definitely affect the market."
Williams said that the property market has shown to be
resilient to market factors and "bounced back very quickly as
there is very good demand in all property sectors."
He forecasts that last year's high record of the government's
approval on foreign and domestic investments as well as this
year's projected high economic growth will serve as stabilizing
factors for the property business.
He said the property market in the greater Jakarta area
generally demonstrated strong supply and demands levels
throughout last year.
Growth
According to the newest edition of Property Market Outlook, a
quarterly magazine published by PT Procon Indah in association
with Jones Lang Wootton, all property sectors enjoyed significant
growth last year, except luxury apartment and hotel sectors.
The hotel market demonstrated declining overall occupancy
levels. During the first eight months of last year, the average
hotel occupancy level declined to 60 percent from 64 percent in
the same period of 1993.
It is estimated the occupancy level is likely to fall further
in 1995 due to the faster growth in supply, especially in hotels
of three stars and lower, than the demand.
"Hotels which do not have a strong affiliation or strong
repeat clientele will suffer first," the publication says.
It also says that over 970 new apartments and condominiums for
lease entered the market last year, reducing overall occupancy by
12.8 percent to 78.4 percent by last December.
In the second half of 1994, several condominium projects were
rescheduled. Approximately 6,600 units are in the active
construction stage, and scheduled for completion by the end of
1997. An additional 18,780 condominiums are projected to be
completed in the same period and enter the market.
"The high supply of upper income targeted condominiums has
given rise to concern as there are a limited number of buyers and
many are purchasing for speculation," the magazine says.
While the condominium and hotel market saw weak demand last
year, the industrial, retail and office sectors enjoyed their
bullish growth.
Bayu Utomo of Procon Indah said the investment deregulation
issued in June last year has affected the industrial market
positively. Annual take-up during 1994 increased by 25 percent
over the previous year's level to 280 hectares.
The June deregulation eases requirements on equity ownership
and divestment and allows foreigners to invest and operate in
infrastructure facilities.
"The positive impact of the deregulation on the industrial
market is expected to continue in the following years," Bayu
said.
Last year, the office sector enjoyed its highest average
occupancy rate since December 1991. The occupancy rate last year
increased by 5.3 percentage points to 92.2 percent from the
previous year.
The magazine anticipates that demand for office space will
remain strong this year and next year.
The retail market enjoyed better prices last year, with an
increase in average rents of prime ground floor space of over six
percent to US$70 per square meter per month. The average
occupancy rate of retail centers for the second half of 1994
increased by 4.5 points to 92.1 percent last December. (rid)