Rising interest rates stall sales or apartments

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.