RI's property unlikely to crash as in Thailand

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)