Rising interest rates stall sales or apartments

Anissa S. Febrina, The Jakarta Post, Jakarta

High interest rates are putting the brakes on the sales of middle- to upper-class apartments, with investors turning to banking products for investment, a property research firm says.

"With an increase in time deposit interest rates, cash-rich investors will possibly return to the banking sector, putting pressure on property investment," Jones Lang LaSalle strategic consulting and investment head Bayu Utomo said last week.

As of September 2005, there were 15,333 middle- to upper-class apartments in the capital, of which 4,760 were vacant. The market saw a slight drop in the vacancy rate to 31 percent this year from 32.6 percent during the same period last year.

During the third quarter, about 113 new apartments were built, mostly in the upmarket strata-title SCBD Suite condominiums in South Jakarta, and middle-class apartment Taman Pluit Kencana in West Jakarta.

Overall, up until 2007, there are 54 proposed projects supplying some 32,000 new apartments in Jakarta, 68 percent of which will be for the middle to upper classes, according to LaSalle's research.

There could be positive consequences to the current economic situation, however, where interest rates help contain the inflationary pressure resulting in particular from the average 126.6 percent increase in domestic fuel prices in October.

"Actually, the economic situation could be a blessing in disguise. Developers will review their projects and possibly delay them. That could avoid oversupply in the market," LaSalle national director Lucy Rumantir said.

Some property players are indeed reviewing their projects, but some have decided to go ahead with their plans regardless.

PT Lippo Karawaci may be among the latter, with a new upmarket apartment block and mixed-use area in Kemang, South Jakarta.

The 80 apartments in the first tower of the project, occupying 2.23 hectares of land, will be launched early next year, the company's chief financial officer, Lucyana Pandjaitan, said.

Aside from the upmarket apartment, Lippo will also proceed with its plan to develop 540 middle-class apartments in addition to trading center Depok Town Square in Depok, south of Jakarta.

Meanwhile, several other leading property players said that they would rather delay their projects to recalculate the required investment.

"Since we have several projects to be completed by mid-2006, we figure there will be a significant (additional) supply already next year. We will review a couple of our proposed projects," Agung Podomoro Group (APG) director Indra W. Antono said.

APG was to introduce new apartments via its Senayan City project, The Peak, The Pakubuwono Residence and CBD Pluit.

A similar sediment was voiced by long-time developer PT Ciputra Surya and Summarecon Agung.