Industry Review: Glimmer of Hope in Property Market

Property Market (Photo: RK)

JAKARTA (TheInsiderStories) – The Indonesian property sector has been showing snail’s-pace growth over the past two years, partly due to relatively weak consumers’ purchasing power; such a trend is expected to continue until next year.

However, certain industry players apparently consider 2018 as a perfect time to invest and bring new projects to market in anticipation of the recovery of the property industry following the general election in 2019, industry analysts say.

The property sector has in fact nearly stalled, growing at a slower pace for the past two years. Early this year some hopefuls expected a pick-up after a disappointing 2016, but it failed to come to pass.

‘Overall, the property sector has not been growing as we had expected earlier this year. I think this is a general feeling among property players, both large and medium scale,’ Anton Sitorus, Head of research of Savills Indonesia, told TheInsiderStories.

From the investors’ point of view, yields in property investment are not as attractive as before; therefore, they are reluctant to make significant investments. A small but steady number of some end-users are buying primary properties, but not on any significant scale.

“What we see is that consumers, either investors or end-users, are tending to hang onto their cash, rather than investing or buying new properties. This situation is also exacerbated by weakening consumer purchasing power,” Anton Sitorus said.

This is the reason why most property players have been less aggressive in the past two years. A few ambitious ones do however continue to expand – such as Lippo Group with its mammoth Meikarta project. The group appears to be making a good start as it offers cheaper apartments to end-users. However, companies like Lippo are scarce. Most developers are tending at the moment to refrain from launching major property projects.

The office and retail sectors have also been progressing slowly, partly driven by the limited expansion of companies. This is reflected in the low occupancy rate in some major office tower projects in the past one or two years, as well as the move by some major retailers to close down their outlets.

“The office building market has been growing slowly since two years ago. We haven’t seen strong signals that the sector would pick up anytime soon,” Sitorus noted.

Ferry Salanto, Associate Research Director of Colliers International Indonesia, echoed the view of Anton Sitorus. He said there have not been any significant sales deals in strata title offices in the third quarter of this year, as were recorded in the previous two quarters.

Around 40 per cent of office supply available for sale in the period of 2017-2018 has not been sold as yet. As a result, owners tend to offer unsold office space for lease, while waiting for the market to recover in 2018 before selling strata title units.

The slow pace growth of the property sector was not a surprise because overall economic growth has also been relatively subdued this year, growing by only 5.01 per cent in the second quarter and 5.06 per cent in third quarter, averaging around an annual 5.1 per cent.

Given such circumstances, Bank Indonesia has tried to spur growth and stimulate business activity, including in the property sector, by pulling down the benchmark rate, BI 7-Day Repo Rate (previously BI Rate) to 4.25 per cent at present from 7.50 per cent in 2015. However, such efforts were apparently not enough.

“The rate cut seems to have limited impact on the property market. This means that there are other issues which need to be addressed to boost property market growth,” Anton Sitorus noted.

Bank Indonesia’s decision to lower interest rates was supported by a low inflation environment: inflation rate for the calendar year (January-November) 2017 was relatively low at 2.87 per cent and the year-on-year inflation rate (November 2017 to November 2016) stood at 3.30 per cent, which is still in line with the government’s target of 3.82 per cent.

So far, many investors and buyers opt to ‘wait and see’ before buying new properties. However, there could be a ‘wind of change’ next year, as investors and buyers may be more speculative in buying new properties.

“The window of opportunity may be limited only until 2019, as the property sector could be rebound after 2019 if the general election run successfully,” said Sitorus.

“Therefore, next year could be the last opportunity to buy good property or assets at bargain prices before they pick up again,” Sitorus observed.

For developers, 2018 could be a good time to make a new start or preparing new projects. Therefore, once the political agenda, elections are done, they can develop their projects earlier than others.

Written by Roffie Kurniawan, email: