Moody's Investors Service says that demand recovery will be uneven across Indonesian property segments, although cash flow is expected to broadly improve from low levels in 2020 - Photo: Special

JAKARTA (TheInsiderStories) – Moody’s Investors Service says that the pandemic-led consumption shock will drive economic contraction and hurt demand across all segments of Indonesia’ property sector over the next six to 12 months. This will creating pressure on rated developers’ credit metrics, said the agency in their latest report.

“We expect weak retail sales will hurt occupancy and retail property rents, while oversupply continues to constrain earnings in the office segment and industrial land sales fall as companies reduce capital spending,” says Jacintha Poh from Moody’s.

She continued, “The residential segment should perform relatively better, given developers’ willingness to cut prices and the potential easing of rules for foreign buyers. Demand will be the strongest for housing projects priced at IDR1 billion or lower.”

In this environment, marketing sales will broadly decline in 2020, with the aggregated marketing sales of Moody’s six rated developers falling 25 percent from 2019 figures. This slowdown in marketing sales, along with the revised accounting standard for revenue recognition, now based on handover instead of percentage of completion, will drive a decline in earnings, causing rated developers’ leverage and interest coverage to weaken in 2020 – 2021 from 2019 levels.

For most developers, liquidity will weaken over the next 12 months because of declines in operating cash flow and upcoming debt maturities. PT Alam Sutera Realty Tbk (IDX: ASRI) (Caa1 negative) and PT Agung Podomoro Land Tbk (IDX: APLN) (B3 negative) both face a deterioration in operating cash-flow and are reliant on external funds to meet debt maturities in 2021, heightening the risk of default.

Then, PT Modernland Realty Tbk (IDX: MDLN)’ (Ca negative) cash flow has fallen to the extent that it is unable to meet interest payments on its US Dollar bond. It has initiated the restructuring of its American Dollar notes.

While, JLL reported, the leaders of Corporate Real Estate (CRE) in Asia Pacific are optimistic about their business and recovery plans amid the impact of the ongoing pandemic. At least nine out of ten correspondents believe that efforts to reduce the impact of COVID-19 will be successful and have confidence in the ability of their resources to cope with the current crisis.

The majority of them also expect that the number of property assets that are maintained will remain the same or even increase. According to JLL, CRE leaders are moving confidently forward in remodeling their new, modern offices by prioritizing employee health and well-being, and leveraging technology in their investment plans.

The leaders are very confident about their future business prospects. Nearly 80 percent believe they have the right property company service partner to advise on future steps and 70% believe in the government’s ability to address future risks. These CRE leaders demonstrated a high level of satisfaction with the effectiveness of their business continuity planning and 88% rated their plans as effective, if not very effective.

While most (76 percent) of CRE leaders in Asia Pacific predict a moderate or reasonable rationalization (expansion or decline) impact on their real estate portfolios due to COVID-19, not all share the same view. Those in Australia and Hong Kong are more focused on stable rationalization while leaders in India anticipate rationalization that is massive and rapid.

Despite this difference, half of all CRE leaders believe the volume of their portfolio will remain the same over the medium to long term. Two-thirds of CRE leaders (63 percent) also expect their total location to remain unchanged.

“As the corporate sector prepares for normalization amid the pandemic, the high confidence of CRE leaders represents a great opportunity as we redefine the offices of the future. This makes it clear that in the future we will have to consider new realities as well as the evolution of the office as a workplace. We see that CRE leaders will start to consider this in their decision making, “said Anthony Couse, CEO, Asia Pacific, JLL.

James Taylor, Head of Research, JLL Indonesia added: “Offices will remain even though the pandemic conditions have accelerated change, which was already happening even before the COVID-19, in offices. We are likely to see a greater focus on health and wellness, and more investment in technology, along with more collaborative spaces and flexible working environments in Jakarta offices. “

Edited by Editorial Staff, Email: theinsiderstories@gmail.com