Indonesian property developers will see slower growth this year while the country awaits the outcome of the presidential election, though the market is expected to pick up again once a new president is chosen in July.
A recent report by Moody’s Investors Service said the Indonesian property market continued to see challenges in 2014 due to the elections, higher mortgage rates, tighter mortgage financing and slower gross domestic product (GDP) growth.
The country’s GDP grew by 5.2% year-on-year in the first quarter, respectable by regional standards but still lower than forecasts.
“We expect revenue growth [in the property sector] will slow to 11% in 2014, from 29% in 2013, as a result of a high base of comparison last year and slower-than-expected marketing sales,” said Jacintha Poh, a Moody’s analyst.
Anton Sitorus, head of research at Jones Lang LaSalle (JLL) Indonesia, said there were signs of easing sales volume due to slower economic growth and business expansion, exacerbated by rupiah depreciation against the US dollar and higher interest rates.
“But it’s mainly due to the interest rate, since buyers always weigh that before buying properties and it has put a damper on buyers’ intentions,” he told Asia Focus.
Bank Indonesia earlier this month maintained its benchmark interest rate at 7.5%, with the lending facility rate at 7.5% and the deposit facility rate at 5.75%.
The rate has stayed at its current level since the central bank increased it from 7.25% in November, following a gradual rise from 5.75% at the start of 2013.
Sitorus believes the impact of ongoing elections was more on investor sentiment, as the increased level of uncertainty has deterred them from making business decisions.
He said that most investors would for a clear result, considering there is greater uncertainty over the outcome this time than in 2009 when President Susilo Bambang Yudhoyono easily won his second term.
“Once the new president is elected, they can have clearer business projection,” Sitorus said.
Moody’s also expects growth in aggregate revenues of the four rated Indonesian property developers — Pakuwon Jati Tbk, Lippo Karawaci Tbk, Alam Sutera Realty Tbk and Modernland Realty Tbk — to moderate. It has revised their marketing sales targets downward despite projecting double-digit growth this year.
“Rated developers have kept new project launches light in the first half of this year, with the bulk of new launches deferred to the second half, after presidential elections in July. As a result, the developers have only achieved less than 20% of their full-year marketing sales targets,” Moody’s Poh said.
A review of Jakarta’s property market in the first quarter by JLL also shows that the capital city is expected to see sharply lower growth than 2013, with office leasing occupants are being more cautious, while rents for high-end residential properties are down slightly.
JLL expects to see a further office market slowdown in Jakarta throughout 2014. Meanwhile, limited available space and the absence of new completions are likely to keep vacancy rates at historic lows though there is still room for rents to grow, albeit at a much slower pace compared with the previous two years.
“Along with the anticipated increase in rents and capital values, we expect to see slight yield compression in 2014,” the quarterly review said.
Arief Rahardjo, senior associate director for research and advisory at Cushman & Wakefield Indonesia, takes a different view, saying that office demand and transactions in existing buildings continued to grow positively in the first quarter and that by the end of March the overall occupancy rate grew by 0.8 percentage points to 94.4%.
“Demand for rented and strata-title office space is expected to remain positive throughout the year,” Rahardjo said.
JLL predicts softened market demand in the luxury apartment market, though limited future supply will likely mean apartment rents will hold relatively stable in 2014 and support a gradual increase in 2015. In the condominium market, buying sentiment is expected to weaken over the next few quarters following the central bank’s decision to increase interest rates.
Sales likely will be driven by quality projects attached to international luxury hotels, and residential property is likely to remain a popular investment vehicle for cash-rich Indonesians.
On the other hand, Rahardjo said condominium sales in Greater Jakarta in the first quarter still showed a very healthy figure of 97.1%, and pre-sales on new condo projects grew 5.6 points year-on-year to 63.2%, despite an expected growth slowdown. Plans to launch new condominiums remain in place, reflecting developers’ optimism about the opportunity in the capital.
“The outlook for the industrial estate market is different as the buyers are mostly foreign investors. Prospective buyers are in a wait-and-see mode, reducing demand in this quarter to the lowest in the past five years. But the market is expected to pick up again later this year when the elections are over,” he said.