Property market will slow: Analysts

Mariani Dewi , The Jakarta Post , Jakarta | Thu, 11/13/2008 10:36 AM | City

The global economic downturn and liquidity crisis may send Jakarta's property market into a period of lower growth, property analysts say.

Anton Sitorus, the head of research at Jones Lang LaSalle, said the uncertainty caused by the slowdown of the national and global economies, high bank rates and next year's presidential election had encouraged both developers and buyers to sit back and wait.

"People are adopting a wait-and-see approach now. It is not only about potential losses but also potential gains from the change of market situations," Anton told The Jakarta Post on Wednesday.

"It *property market* will still grow but at slower rate. Industrial estates may face negative growth because of lower exports," Anton said.

For developers, tight credit markets create difficulties when financing projects and price uncertainties contribute to increasing construction costs.

Anton said weaker demand worsened the problem and slower consumption reduced the interest for retail properties. Companies facing difficult financial situations are choosing to consolidate rather than expand, reducing the demand for office or retail space, he said.

"The attractive interest rates at the bank may push investors to keep their money in banks rather than in property."

For individual consumers, especially middle class and below, increasing interest rates and tougher loan restrictions may lower the numbers buying houses, analysts agreed.

Developers are trying to work around the high interest rates by offering more flexible installment options, such as longer installment periods or subsidizing the interest rate by promoting special discounts.

Anton said the demand for luxury apartments may pick up next year due as the number of foreigners working as election monitors in Indonesia increases.

The company still receives some enquiries from foreign retailers wanting to expand their market into Indonesia, hoping to tap the vast population's consumption potential.

Commercial offices may also peg their rental fees from dollar denominations to rupiah to overcome the fluctuating dollar rate.

For developers, lower oil and steel prices are good news because construction costs have been reduced by up to 20 percent.

The price of most properties, Anton said, have also not reached the highest price band. Office rents, for example, are still lower than the pre-1998 rate. This, he said, promotes higher prices.

The company warned customers to purchase only from reputable developers with a strong track record for completing their projects, just to be safe and ensure their investments.

"The contractors have the capabilities to complete their projects because most of them have the funding. Even if they do not have the hard cash, they can arrange it through some strategic partnership. The question is whether they are committed to do it," Lucy Rumantir, the chairman of the company, said.

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