The plunge in Indonesian property stocks since June may have reflected the increase in borrowing costs, amid concern that higher rates and tighter regulation are curbing demand from consumers
October 30, 2013 Leave a comment
Tumble in Property Stocks Reflecting Higher Borrowing Costs, Regulations
By Jakarta Globe on 9:38 am October 28, 2013.
The plunge in property stocks since June may have reflected the increase in borrowing costs, amid concern that higher rates and tighter regulation are curbing demand from consumers. The central bank first raised its key interest rate by a quarter percentage from a record low of 5.75 percent on June 13, for a total increase of 1.50 percentage points to September, in an attempt to anchor inflation expectations and to narrow the gap in the country’s current account balance.The 54-member Jakarta Property Index, a benchmark measure for the industry that also includes construction companies, has declined 15 percent since that first rate increase through Friday. Meanwhile, the broad Jakarta Composite Index has fallen 0.6 percent in the same period.
Among the biggest property developers, Agung Podomoro Land has tumbled 27 percent, Ciputra Development has dropped 21 percent, and Intiland Development has fallen 27 percent. Lippo Karawaci, which is affiliated with the Jakarta Globe, has lost 31 percent.
The nation’s 120 commercial lenders have followed suit in raising their lending rates to customers.
The average interest for condominiums increased to 9.2 percent in August, from 8.7 percent in May, according to the latest available data by Bank Indonesia. Average home mortgage rates, however, remained at 10.3 percent during the period.
The central bank also tightened down-payment requirements for purchases on houses that use bank loans to as much as 50 percent from 30 percent previously.
The central bank also banned the use of bank loans for pre-order purchases — or buying house that are not yet built — except for first-time home buyers. Analysts said that both actions had hurt demand as much as affected supply because many developers depend on pre-order sales to support their cash flow.
Recent data from local property consultant Jones Lang LaSalle Indonesia showed that demand for office space and condominiums in Jakarta weakened in the third quarter of the year, due to slowing economic activity, a depreciating rupiah and rising borrowing costs.
Still, there may be value in some of the developers as recent declines have made stock prices cheap.
Agung Podomoro trades at 6.5 times this year’s estimated earnings, according to data compiled by Bloomberg. That compares with a multiple of 16 for the JCI.
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