Property business strong despite strict ruling
The government’s plan to introduce new property rulings, intended to improve prudent lending practices in the country’s banking system, has been met with mixed reactions from property companies and consumers in Indonesia.
Anton Sitorus, head of research at Jones Lang LaSalle, a property consultant in Jakarta, believes that cash-rich Indonesians will continue to buy apartments and homes regardless of new rules soon to be imposed by the regulator, Bank Indonesia.
“The Indonesian upper class has the money to buy in cash,” Anton says. “But the middle-to-lower income bracket, those who need mortgages, will be affected,” he adds.
Indonesian consumers seeking to buy a property will have to pay at least 30% of its value starting in June, compared with around 20% now. This increase in the down payment would pose problems for middle-to-low income consumers, analysts believe.
The ruling on mortgages, along with a similar ruling on vehicle purchases, is the latest in a series of moves by Bank Indonesia to help ease excessive consumer loan demand.
The outlook for offices and apartments will not be in doubt. Property analysts and businessman say demand for luxurious apartments and office space in Jakarta’s business districts, especially in the ‘Golden Triangle’ – encompassing Sudirman, Kuningan and Mega Kuningan – will remain strong.
“There is still demand,” Harun Hajadi, managing director of Ciputra Development, pointed out.
Vivin Harsanto, head of strategic consulting at Jones Lang LaSalle, adds that property companies know how to sell their products. “Developers have all kinds of marketing and pricing schemes.”
Ciputra Property, a property unit of Ciputra Group, has been offering office space at two of its property projects in Kuningan district in South Jakarta, Ciputra World I and II. Ciputra World 1, encompassing 5.5 hectares on Jl. Prof. Dr. Satrio, has business, residential and retail space. Ciputra World II will feature condominiums, a hotel and an office tower. The projects began in January and are expected to be completed by 2014.
Another project that has been the darling of many consumers is the St. Moritz Penthouses and Residences in Puri Indah, West Jakarta, a mega-project developed by Lippo Karawaci, the country’s biggest listed property developer with interests in housing, retail, hospitals, hotels and asset management. Lippo Karawaci is affiliated with GlobeAsia through the Lippo Group, which owns both entities.
On the up
Property developers have good reason to be optimistic about the future of their business. Rising consumer demand spurred by low borrowing costs last year led property companies to post stellar performances last year.
According to data from Investor Magazine, a sister publication of GlobeAsia, the total combined assets of listed property companies rose to Rp188.5 trillion last year, from Rp158.5 trillion a year earlier, while combined net income rose to Rp9.23 trillion last year, up from Rp6.8 trillion in 2008.
Southeast Asia’s biggest economy grew 6.5% last year, driven by domestic consumption, posting the fastest pace of growth since 1996. As other economies in the region suffer from the global slowdown, Indonesia’s outlook remains on the bright side, largely due to continuing strong consumer demand.
The country’s capital remains the hot spot for property sales. According to data from Cushman & Wakefield, another property consulting company, around 90% of 294,000 new houses were sold last year in the Greater Jakarta area, an increase from 87% in the second quarter of 2010.
“We are lucky enough that our economy remains strong,” said Destry Damayanti, chief economist at Bank Mandiri, the country’s largest lender by assets. Going forward, private consumption, coupled with rising investment, is expected to continue to spur economic growth this year.
Low borrowing costs, which stayed below 6% last year, helped many consumers to buy houses, cars and mobile phones. Cement sales, along with property and car sales, are leading indicators of the economy and sales of the material, used mainly in property and construction-related businesses, jumped 18% to 12.5 million tons in the first quarter of this year from the same period last year, suggesting an increase in property development.
The trend in cement sales was on par with consumer loans in the same period. According to the latest data from Bank Indonesia, growth in consumer loans – funds typically used to buy vehicles, mortgages and credit cards – grew 21% to Rp703.8 trillion in the first quarter, up from Rp582.9 trillion in the same period a year earlier.
Other prominent property companies are Sinarmas Land, owned by the Sinar Mas Group founded by Eka Tjipta Widjaya, and Agung Podomoro group, owned by Trihatma Haliman. Other groups include Sugianto Kusuma’s Agung Sedayu Group and Sugianto Nagaria’s Summarecon Agung. Bakrieland has the milestone Epicentrum Walk project in Kuningan in South Jakarta.
Ciputra Group, founded and chaired by trained architect Ciputra, has expanded its reach domestically to Sulawesi and Kalimantan, and regionally to Vietnam and Cambodia. Its Vietnam project, the 301-hectare satellite city named the Ciputra Hanoi International City, was among one of its first forays into overseas development. Apparently happy with the reception of its developments, Shenyang in China is its next expansion project.