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 demand recovery will be uneven across Indonesian property segments, although cash flow is expected to broadly improve from low levels in 2020. The agency also rated, demand for residential property will recover the fastest among the property segments, where pent-up demand and low interest rates will fuel a 10 percent growth in rated developers’ aggregated core marketing sales.

“In the retail segment, however, weak sales will hurt retail space demand, and occupancy and rents are unlikely to return to pre-pandemic levels. And in Jakarta, the central business district remains exposed to subdued office demand amid upcoming asset completions and telecommuting,” says Jacintha Poh, an analyst from Moody’s in her latest report.

The agency expects the aggregated cash flow for the six rated Indonesian property developers will rise in 2021 after dropping significantly in 2020 because of coronavirus disruptions. A normalization of rental income from retail malls and core marketing sales growth will lift aggregated operating cash flow.

In particular, landlords PT Pakuwon Jati Tbk (IDX: PWON) (Ba2 stable) and PT Agung Podomoro Land Tbk (IDX: APLN)) (B3 negative), which generate over a quarter of their revenue from retail leasing, will benefit from declining rent relief to tenants. And most developers, having refinanced their upcoming US Dollar debt and with no maturities through to 2023, will have adequate liquidity over the next 12 – 18 months.

Earlier, Moody’s 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,” adds by Poh.

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 Rp1 billion (US$714,286) or lower.”

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.

US$1: Rp14,000

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