JAKARTA (TheInsiderStories) – Bank Indonesia (BI) estimated the residential property prices getting slower until September of 2020. This was indicated by the estimated growth of the Residential Property Price Index in the third quarter (3Q) of 2020 of 1.19 percent, lower than 1.59 percent in the 2Q of this year.
“This is also lower than the third quarter of 2019 which reached 1.8 percent,” said the central bank on Wednesday (08/12).
It said, the slowing down growth occurred for all type of houses. The growth of housing prices for small, medium, and large types is estimated at 1.56 percent, 1.24 percent, and 0.78 percent, respectively. The percentage lower than the previous quarter of 2.35 percent, 1.42. percent, and 0.99 percent, each.
The decrease also occurred in most cities surveyed, especially Medan and Banjarmasin which grew 1.01 percent and contracted 0.40 percent, lower than growth of 3.96 percent and 0.48 percent in the 2Q of 2020. On a quarterly basis, residential property price growth in the 3Q of this year is also estimated to be lower than the previous quarter.
“This is indicated by the IHPR which grew 0.11 percent on quarter basis, lower than 0.32 percent in the second quarter of 2020 and 0.5 percent in the third quarter of 2019,” said the report.
According to BI, the slowdown in quarterly housing price growth is estimated to occur in all types of houses, especially small type housing prices, which are estimated to only grow 0.18 percent quarter on quarter, lower than 0.5 percent in the previous quarter.
The sharp deprecation in the Indonesian Rupiah against the US Dollar will weaken the debt servicing ability of property developers, a credit negative, says Moody’s Investor Services in the latest report.
“More than two-thirds of the companies’ aggregated debt is in US Dollars, while their revenue is earned in Rupiah. With the Rupiah sliding, this high exposure to foreign currency debt is creating significant risk for the property developers at a time when the coronavirus outbreak is already weighing on earnings,” says Jacintha Poh, an analyst at Moody’s on April 9.
While five out of the six rated property developers have financial hedges to protect the principal sum of their US Dollar debt, these hedges only cover rupiah deprecation to certain levels, with around 57 percent of their American Dollar debt protected as of March 31.
Moreover, the companies’ US Dollar interest expense is largely unhedged. Combining the effects of weaker earnings and a higher debt burden, Moody’s expects the developers’ financial leverage – as measured by homebuilding debt or EBITDA – will deteriorate significantly in coming months.
And if the Rupiah weakens to 17,000 against the US Dollar – from about 16,575 as of 23 March – only two out of the six developers would remain within the leverage thresholds for their ratings, namely PT Pakuwon Jati Tbk (IDX: PWON) (Ba2 stable) and Bumi Serpong Damai TbK (IDX: BSDE) (Ba3 stable).
The exposure among the property developers to the Rupiah’ weakness varies, with Moody’s sensitive testing showing that PT Alam Sutera Realty Tbk (IDX: ASRI) (Caa1 negative) and PT Modernland Realty Tbk (IDX: MDLN) (B3 negative) would be the most exposed if the Rupiah depreciates to 17,000.
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