A time to buy
January 31, 2011

A healthy macroeconomic outlook combined with a huge domestic market will propel solid growth in the property sector in 2011, reports Albertus Weldison Nonto.

Single-digit interest rates, healthy domestic growth and macroeconomic conditions are all conducive to a positive outlook for Indonesia’s property sector this year. A manageable inflation rate of 6% will create room for developers to launch new projects and consolidate further expansion in the sector. Harun Hajadi, director of Ciputra Development, predicts that Indonesia’s property market will soar over the next three years, especially in the commercial and middle to lower income housing sector. “The current interest rate is the lowest in the history of this country,” he says.

Growing sector
In the eyes of Anton Sitorus, senior manager at Jones Lang La Salle, the property sector will be among the top 10 fastest growing sectors in 2011. From the perspective of investors, residential properties, condominiums and office and retail space all offer promising returns. Residential properties are the safest investment as land prices will remain stable, says Anton.

In terms of condominiums, Jakarta’s golden triangle represents a safe bet as reflected by the number of people swapping the suburbs for the city, he adds. In this sector, the Agung Podomoro Group will remain the major player, while Duta Pertiwi of Sinar Mas and the Bakrie and Lippo groups will also benefit from the strong growth.

The office sector is also looking healthy, experiencing the highest growth in the last decade in 2010. In this field established players such as Mulia still lead the sector while new players such as Bakrieland and the Lippo Group will also capitalize on sizeable demand. In the retail sector Lippo will lead the market, says Anton, despite the possibility of oversupply.

“I believe the consumer sector will slow down a bit in the first three months of 2011 due to the government’s decision to stop subsidizing fuel for cars, but it will recover and continue to grow,” he says. For developers, notes Anton, there is ample opportunity in residential properties too given strong demand from first-home buyers and for shop-houses (ruko). While supply in the central business district (CBD) is still low, competition remains tight. Groups backed by banks have an obvious advantage.

Growth in the retail sector, however, is expected to be minimal considering massive expansion over the past three years. With Indonesia’s property prices still comparatively low in the region, investors and foreign business groups are keenly watching the potential margins. Investors in Indonesia are seeking shares as well as tangible assets in construction and property, notes Anton, citing developers from Korea who have recently inked property deals in Indonesia.

Budhy Siallagan, a property analyst from E-trading Securities, confirms the international attention Indonesian property is currently receiving. “Indonesia’s property market is the darling of international investors right now,” he says. International banks such as Standard Chartered and ANZ are also looking at financing local developers. “Some developers have liquidity problems, but demand is soaring so they need funding to get in on the expansion,” explains Anton.

Related sectors
“I am optimistic the property sector will grow next year. Macroeconomic indicators are positive, inflation is only 6% and interest rates are very low, even related sectors such as iron and steel and cement for example, are still low,” says Budhy. Demand for middle to lower-end residences is still high and supply remains moderate, while for the high-end market conditions are stable as developers are using their liquidity prudently, says Budhy.

In terms of the commercial property market, the CBD is the golden location. “This is a sign of strong demand in the sector and Indonesia is lucky as the property crash in US has made developers more prudent about their expansion plans,” he notes, adding that earnings per share have touched 80% over the past two years.

The giants
For the big players such as the Agung Podomoro Group, owned by tycoon Trihatma K Haliman, Aburizal Bakrie’s Bakrieland and Mochtar Riady’s Lippo Group, the coming year is being equated with expectations of solid growth. “Lippo Karawaci is a major player in the industry and its strong interest in public utility projects such as hospitals and residential developments such as Kemang Village and St Moritz will target the middle- to high-end market,” says Budhy.

In the pipeline for Bakrieland are projects in the CBD, including in the Kuningan and Sudirman area. With its huge land bank, the group is set to woo investors attracted by the soaring value of its assets.

The group’s development plans linked to its toll road, such as its Bogor Nirwana Resort (BNR) that will connect with Ciawi-Tasikmalaya (both in West Java), are also likely to boost its accounts. Agung Podomoro Group is focusing on some prestigious projects, including its Central Park project, to be completed this year using funds from its IPO. GA

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