RI's property unlikely to crash as in Thailand

JAKARTA (JP): Indonesia is unlikely to experience a widespread property market crash similar to that in Thailand in the next few years, local property experts say.

Property consultant PT Procon Indah and James T. Riady of the Lippo Group said Indonesia's property fundamentals were still much sounder than those in Thailand.

Procon Indah, in association with Jones Lang Wootton, acknowledged that Thailand's banking and property market woes had raised questions about the possibility of similar occurrences in Indonesia.

But it noted the important difference between the status of the two property markets was the extent of oversupply, which was far higher in Bangkok.

In addition, Procon Indah said Indonesia had strength in gross domestic product, export and investment growth.

"These factors are expected to maintain demand growth in Jakarta," Procon Indah said in the July edition of its Property Market Outlook quarterly.

James agreed and said the Jakarta property market was less speculative that Bangkok, Manila or even Kuala Lumpur.

"In Indonesia, property projects, especially middle and low- cost housing projects, are built in line with the people's needs.

"Besides, many large property firms have gone public and booked sound financial records... So, no need to be so concerned," James said.

Lippo is developing the major township projects of Lippo Karawaci in the west of Jakarta and Lippo Cikarang in the east of Jakarta.

Procon Indah noted that Indonesia's inflation rate appeared to be under control, and the already high banking interest rates in Indonesia looked set to decline, further bolstering prospects for the market.

Indonesia's inflation was 2.5 percent during the first six months of this year, compared to 4.0 percent in the same period of last year.

Interest rates are expected to decline by one percentage point in the second half of this year given the controlled inflation.

Procon Indah added that the banking industry had become increasingly prudent in financing the property sector, noting a major increase in potential property projects unable to secure financing.

Bank Indonesia, the central bank, surprised the property market earlier this month by introducing a ban on new banking loans for land acquisition and development.

This move came after the meltdown of Thailand's property boom, which had created a crisis for the financial sector and led to speculative attacks on Thai baht.

James, deputy chairman of the Lippo Group, said the central bank's move to limit banking loans to the property sector had helped protect the rupiah from similar speculative attacks.

"I see it as a preemptive strike to avert international speculators from attacking the rupiah for fear of the property sector collapsing as it did in Thailand," James said.

Demand

Procon Indah said property demand in the greater Jakarta area and Surabaya, East Java, remained strong during the second quarter of this despite the general election campaign in April and May.

"During the second quarter of 1997, average occupancy rates increased in most property sectors in Jakarta," Phil Simpson, technical advisor to Procon Indah, said in a press statement accompanying the quarterly.

Average occupancies in Jakarta's golden triangle office market increased by 1 percent to 88.8 percent at the end of last month.

Occupany was 76 percent for Surabaya's prime office spaces.

Average rents in select Jakarta office buildings increased by 3 percent from US$13.50 per square meter per month to $13.90 over the quarter.

In Surabaya's office market, average rents were stable at $11 per square meter per month.

In the rental apartment market, the overall tenant-occupancy levels continued to increase in Jakarta from 71.2 percent to 72.5 percent over the last quarter.

But in Surabaya, the overall tenant-occupancy rate continued to decline to 37 percent from 45 percent over the last six months. This was due to the influx of completed condominiums which will be offered to the leasing market.

As for the strata title apartment market, cumulative sales rates declined in Jakarta from 83.9 percent to 82.6 percent.

In Surabaya, strata title apartments are relatively new, and 81 percent of the existing apartment units on offer had been sold as at the first half of this year.

Retail market recorded the strongest demand both in Jakarta and Surabaya.

Jakarta's retail market booked average occupancy ratio of 91.8 percent in the second quarter, an increase from 90.6 percent in the first quarter.

In the Surabaya retail market, average occupancy increased markedly to 92 percent as at June 1997 from 79 percent recorded in the first quarter.

Procon Indah projected that average occupancy rate for the retail market in both cities would remain high at above 90 percent until the end of this year, since 80 percent of new supply for 1997 was precommitted. (rid)