Indonesia’ Coordinating Minister for Maritime Affairs (CMMA) Luhut Binsar Pandjaitan ensured that Chinese property developer and industrial estate, China Fortune Land Developer (CFLD), would invest in Indonesia. Photo by: China Daily

JAKARTA (TheInsiderStories) – Looking the prospective future of Indonesian property market property developer and industrial estate, China Fortune Land Development wants to invest more in Indonesiam said senior minister on Tuesday (07/23). Previously the developer joined with local partner has two projects in the country.

According to Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan the plan was discussed at the meeting with CEO of CFLD Wu Xiangdong at his office. So far, he said, the value of the Chinese company’ work in the archipelago is almost US$2 billion.

“CFLD came to see me to discuss investment seriously,” he told reporters at his office in Jakarta but he did not specify how much investment they planned to pledge to Indonesia.

CFLD has an investment commitment for two main projects for residential and industrial development since 2016 with a value of Rp 19 trillion (US$1.36 billion). The developers based in Singapore are working on two property projects on the outskirts of Jakarta and Tangerang.

In this project, CFLD collaborated with PT Alam Sutera Realty Tbk (IDX: ASRI). CFLD buys 60 hectares of land from the publicly listed company with costs around $150 million. The developer built 2,800 housing units labeled Lavon Swan City.

Second project is an industrial estate project in Karawang, West Java. CFLD collaborated with other local partner, PT Agung Podomoro Land Tbk (IDX: APLN), as a provider of 200 hectares land.

Previously, Media reported CFLD had indications of financial problems that had an impact on their projects stagnation in various countries, including Indonesia in 2018. Stagnation trend in a number of CFLD projects in various countries such as Egypt and India since February 2018 hampered the company businesses.

Based on Chinese media reports, CFLD fired 900 employees after the company suffered a financial crisis. In addition, the company sold part of its business unit to China property giant Vanke in June 2018.

CFLD headquarters in Singapore also fired 60 employees from a total of 96 registered employees. Dismissal was carried out two years after CFLD opened its headquarters in Singapore and expanded its business in Indonesia and Malaysia.

Based on Standard & Poors (S&P) Global Ratings most of Indonesian developers have not faced major refinancing risks in 2019 and 2020. Alam Sutera, however, has $70 million due in March 2020 while PT Lippo Karawaci Tbk (IDX: LPKR) $125 million is due in the second quarter of 2020.

Funding conditions are no longer as profitable as two years ago. This is partly due to the knock-on effect of China, where tight funding and leverage conditions have caused Chinese developers to increasingly switch to short-term foreign bond markets, and issue new newspapers at higher costs.

On the other hand, Indonesian developers also face higher demands for returns, with funding costs soaring to above 10 percent, while tenure preferences have been shortened to three years or less.

S&P considers that the domestic Indonesian bond market cannot absorb large bond issuance and therefore property developers continue to depend on foreign markets. The rater also noted, this time windows for refinancing was shorter compared to five years ago, when developers usually refinance at least 24 months before the maturity of the note.

For an example, in 2018, PT Modernland Realty Tbk (IDX: MDLN) finished refinancing of $58 million in 2019, 12 months before maturity. Similarly, Alam Sutera partially refinanced $235 million in 2020, a record 14 months before maturity, leaving $70 million to be refinanced this day.

But this route is uncertain, because most developers have no record of securing large bank loans with long tenors. In addition, these loans require asset guarantees, so they are not the preferred funding source for developers.

Therefore, according to S&P, market conditions in Indonesia must trigger a new strategy and developers mixed the products. Indonesian regulator has eased loan-to-value requirements in August 2018 for the first mortgage. This will help increase home ownership.

“We believe changes in the product mix can increase sales volumes for developers. Affordable housing is increasingly popular, and we hope this trend has endurance,” said the analysts.

US$1: Rp14,000

Written by Willy Matrona, Email: theinsiderstories@gmail.com