Jakarta Property Slowdown Takes Effect

Jakarta Property Slowdown Takes Effect

By Francezka Nangoy & Dion Bisara on 8:20 am October 18, 2013.
The once hot property market in Jakarta showed signs of cooling during the third quarter, with demand for office space in the central business district down as some companies delayed their expansion plans, and sales of condominiums weakening under new regulation, according to J ones Lang LaSalle Indonesia . Anton Sitorus, head of research at the property consultancy firm’s Jakarta office, told reporters on Thursday that net take-up for office space — which measures the change in occupied space — in the July-September period fell to 61,000 square meters from 93,400 square meters in the second quarter. The decline was caused by the economy slowing this year, a depreciating rupiah and rising borrowing costs.“Concern of a slowing economy is impacting business expansion plans. Some may have to hold off their office expansion, or review their plan,” Anton said in Jakarta.

Bank Indonesia forecasts the country’s economy to expand by as much as 5.9 percent this year, less than the 2012 expansion pace of 6.2 percent. The central bank had raised since June its key interest rate by 150 basis points to 7.25 percent. Such tightening in monetary policy will lead to rising borrowing costs for companies.

In the January-September period, the take-up stood at 275,000 square meters. But by the end of the year, Anton said the office space take-up may match, if not be lower, than last year’s 370,000 square meters.

In the third quarter, occupancy rates were stable at 93 percent. Monthly rental prices rose by 12 percent to Rp 251,400 ($23) per square meter from the previous quarter, which was mostly caused by the rupiah’s depreciation as some of the office managers charge their tenants in US dollars. The rupiah has fallen almost a fifth against the US dollar this year.

Anton said that although only fewer than 25 percent of office buildings in the CBD trade in US dollars, the rupiah depreciation has been sharp and as a result that has supported the price increase.

Meanwhile, condominium sales in the third quarter were the lowest by volume in the past five quarters, on higher interest rates and with the implementation of a new minimum down-payment regulation.

Bank Indonesia tightened the mortgage regulation by increasing the down payment on a second home to 40 percent and a third home to 50 percent.

Luke Rowe, head of residential consultancy at Jones Lang LaSalle, said the down-payment regulation is cooling the property industry as it takes speculators off the market.

Benedictus Agung Swandono, an analyst at Samuel Sekuritas, said the property sector has reached the peak of its business cycle this year, following a boom period in the past three years.

The latest Bank Indonesia down-payment requirement — to as much as 50 percent from 30 percent previously — and a ban on pre-order purchases — buying the house before it’s been built — have suppressed both demand and supply, Benedictus said.

“This time BI really got them. Previous down-payment requirement in 2012 had many loopholes,” Benedictus wrote in a report on Wednesday.

Benedictus also said the ban on pre-order purchases, except for first-time home buyers, would disrupt developers’ cash flow.

Developers that rely heavily on recurring incomes, such as rent from office space or shopping malls, can survive the down cycle in the property business, he said.

“Sales of office space can also compensate for the slowdown in residential sales, as BI rules do not limit it,” Benedictus said.

Average loan interest for condominiums increased to 9.2 percent in August, from 8.7 percent in May, according to the latest available Bank Indonesia data. Average home mortgage rates, however, remained at 10.3 percent during the period.

To illustrate the slowdown in property demand, Samuel Sekuritas in its report showed two photos after the central bank revised the down-payment regulation on Sept. 1. One photo showed a room full of prospective buyers of houses offered by Bumi Serpong Damai on June 9, while the other one showed a room with empty chairs, when the same company launched another project on Sept. 26.

Subscription for the property was more than on offer, but at lower ratios. In the first photo, that rate was 23 times, but in the second one it was only 1.8 times, showing a significant decline in buyer’s interest.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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