Property market picks up in 2008 but still slowing down
Posted on February 5, 2008
Filed Under Interview
Many factors will hinder the Indonesian property market from growing at full speed. Added to them will be next year’s general election. Although their impacts will not be significant, the factors could cause property market slow down, although on the whole it is could be a little better than last year. In order to know more about the factors and the sub-sectors that will slow down, Deddy H. Pakpahan of Asian Property Investment interviewed Anton Sitorus, who heads the Research Division of PT Jones LangLaSalle. Below are excerpts of the interview.
How do you assess whole property market in 2007 and how about its prospect in 2008?
The whole picture is that, although many new property projects were finalized in 2007, the growth of the property market in Jakarta—measured by demand—slumped a little during the course of last year as compared with 2006. This situation was not fully separate from the stagnant business and economy, which impacted investment and corporate plans. Due to limited business growth—except oil and gas, mining, telecommunication and banking sectors whose investors only expanded their businesses—market demand for office space, industrial estate and rented apartments dropped slightly.Meanwhile, slow recovery of consumer buying power due to inflation pressures and rising living cost in cities also forced the retail market to struggle for stemming the rapid growth of new supply in the market. In the condominium market, falling interest rates no longer had positive impacts on condominium unit sales in 2007 because the market segment grew more slowly as compared with new supply in the market. Sales at existing projects were not as fast as in the 2004-2005 period. Competition in winning buyers, especially in areas with many new projects, caused very slow market absorption. Briefly, economic growth that was not fully even and stable and the emergence of so many new projects that competed with one another caused the property market slow in 2007.
What is your estimation of the future development, at least this year’s development, of the property market?
While hoping for rising economic growth in the future, namely due to declining inflation pressures, export and investment growth, I estimate that the property market in 2008 will record a little better growth.The focus of attention in almost each sector is oversupply. Such concern will remain in 2008 when, in coincidence with the finalization of new projects, competition in winning tenants will continue to increase. This situation will influence price and rent price growth, which is predicted to not record significance, in another word: stagnant.
MARKET ABSORPTION: Competition in winning buyers, especially in areas with many new projects, caused very slow market absorption.
Which property sub-sector will experience significant growth during the course of this year and what will be the indicators?
In principle, all sub-sectors had prospects not differing much with one another. But, all sub-sectors also faced same challenges due to oversupply in the market in the past year. However, given the growth of market absorption over the past year, it is predicted that the office space and retail markets may grow faster than the residential sector.In the sub-sectors of office space market, this year’s demand and renting are predicted to be better than in 2007. New office buildings with better quality and facilities are predicted to attract tenants to move and expanding their office space in keeping with their business growth. Local enterprises are estimated to take advantage of the slow growth of rent prices and make transactions of renting, selling and buying strata title office space in that period.As regards retailing, assuming that people’s buying power will rise sightly, the retail market will be more active this year. This follows the optimisms of retailers who will expands their business as we found it from the results of Survey of Retailer Sentiments in Asia Pacific including in Jakarta. In this sub-sector we estimate that middle class projects will grow more rapidly than other segments.
Concerning the condominium/apartment market, will its performance drop this year from the 2007 level?
In my view, the condominium or apartment market will record same level growth as in 2007. This is because at this time many projects are competing in with each other in the market so that developers will likely focus on selling all available units rather than aggressively developing new projects. The pushing factor behind the condominium market development is the growth of Jakarta’s population, especially middle and upper segments in established areas. Further, demand for residential locations near working places will also push the buying of condominium units near the city center.
Some say that apartments of low middle segments will have big enough market. Is that so?
Yes. Demand in this segment is big indeed, judging from the calculation of population growth and the condition of existing housing. But, what needs attention is whether the market target of projects planned for the low middle segment can be achieved. This is because no developer is really dedicated to serving its segment. The worrying thing is projects of this class being dominated by speculators. This can cause a bias in the market growth.
Then, if the market niche still open is only the low middle class, what solutions can be offered to prevent high middle apartments from losing their market?
Many. Proximity to working locations and time efficiency can serve as an attractive promotional theme. Comfort or beauty of the environment and complete facilities will be another alluring promotional theme. Surely, they need to be coupled with price structures that fit the market.
Will oversupply of middle-up apart-ments be automatically settled if new policies are issued to allow foreigners to own property in Indonesia?
It could be. But, it must also be supported with security factors and investment climate stability in Indonesia so that foreigners will feel interested to buy property here. Also, legal procedures and taxation must be transparent.
Then, which property sub-sectors will experience stagnancy? What are the indicators?
Stagnancy will not occur in all areas. Possibly, it will happen in areas with over-supply. It could occur in several submarkets outside CBD, which are not business centers.
As regards retail property, the govern-ment is said to allow foreign retailers to open their outlets in Indonesia, for supermarkets of above 1,500 sqm and shopping malls of over 2,000 sqm. What will be its impact on the retail property market, mainly in Jakarta and other large cities in Indonesia after such policies are issued?
The new rule will exactly limit the operation of foreign investors. But, I am certain their optimisms will remain high considering that the potentials of the Indonesian retail market, which has a very big consumer base. Exactly, the new rule, if fairly and transparently implemented, will make the retail market develop more maturely.
Foreign retailers like Tesco (England), Takashimaya and Isetan (Japan) are said to be seeking locations in Jakarta. Is that true?
Indeed, that issue is there in the market. But, as far as I know, it is not confirmed yet.
You once said that large retailers have a stronger bargaining power in dealing with shopping mall operators, as compared with small retailers. Can you explain it?
Major retailers need far bigger space than as compared with small retailers. The former are normally crowd pullers. So it is normal that sometimes landlords become so ambitious to bring major retailers into their malls. As such they give them special prices.
Are you optimistic that the 2009 elect-ions will not negatively affect national property business?
Judging from our experiences in the past years, the elections will not strongly affect the property market. But the industrial zone sector could be seriously impacted because they are more closely related to economic and social stability.
Credits in the property sector are predicted to reach Rp 200 trillion in 2008. In your view, other than the housing sector, which property sub-sectors will remain attractive and accordingly can obtain bank loans. Why?
Given the big supply at this time and the ever-tougher competition, in general I can say that at this time banks should always review their plans of financing property projects. But, there could be projects that are really feasible and can succeed in the market. They have to examine projects in detail, look at them case by case at the local market.
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