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)