[Kabar-indonesia] Alarming Signs in Indonesia's Property Market [by The Edge/Singapore]

[JoyoNews at aol.com]

The Edge (Singapore)
June 26, 2006

Opinion

Alarming Signs in Indonesian Property Market

By Yosef Ardi

[Yosef Ardi is a veteran business journalist with Bisnis Indonesia.
The opinions expressed here are his own.]

Reminiscent of the early 1990s, almost every day in the past few
weeks, Indonesian newspapers have been splashing announcements of
prestigious projects, sparking fears of another property crash, all
the more since most of these projects are undertaken by those
seriously affected in the 1998 financial crisis, and also because of
the slowing demand on lower-than-predicted growth.

Imagine Dharmala Intiland, a company controlled by the family of
Gondokusumo, who have yet to completely recover from the past crisis,
working on a US$400 million ($1 approx US$0.63) luxury apartment
project in Jakarta, even hiring designer Tom Wright of famed
engineering consultancy W S Atkins -- who designed the Burj Al Arab --
to put a Burj on Jakarta's seaside. The company has been pressured to
review and postpone its US$50 million Grand Champa project and has
refunded customers amid fears of late delivery. Dharmala's
first-quarter operating profit is only 10.9 billion rupiah ($1 approx
5,834 rupiah).

Recently, Indonesia's investment coordinating board approved a Hong
Kong investor's plan to build new malls and apartments in Jakarta
costing US$265 million. So far, this is the largest foreign direct
investment (FDI) commitment to the country. And Singapore's Keppel
Land is working with Modernland Realty to develop a US$300 million
township in East Jakarta. Modernland's recently released 2005
financial report revealed a US$2.5 million profit compared to a net
loss of US$5 million in 2004. Modernland was established by the family
of Samadikun Hartono, whose track record is hardly encouraging as
Samadikun himself was sentenced to four years in jail in 2003 for
embezzling 169 billion rupiah. However, he managed to escape the loop
and is reportedly living overseas.

Almost all the pre-1998 big boys have been aggressively launching new
projects. Recently recovered Pudjiadi Prestige will construct the 300
billion rupiah condo in Bandung, West Java, next month. The ailing
Pakuwon Djati is even processing US$120 million worth of global bonds
to finance various projects. Gentamulia is commencing its The East
project and Agung Podomoro its Garden City, both projected to cost 500
billion rupiah each. Bakrieland has a US$215 million superblock, Lippo
its township projects and Ciputra its planned acquisition of property
assets worth US$315 million. Also resurfacing are Artha Graha, Mulia
Group and Pakuwon in East Java.

New players

What's more, new groups are entering in a big way. The Sampoerna
family acquired the Danamon Twin Towers at Sudirman Business District
from the Panin Group, months after relinquishing ownership of
cigarette producer PT HM Sampoerna Tbk. Djarum Group, the
third-largest cigarette producer, is working on a US$300 million
superblock complex in Central Jakarta after completing a trade centre
development in North Jakarta. Next to it will stand a US$225 million
office tower by Plaza Indonesia (a joint venture between Sinar Mas,
Bimantara and the Gozali fami-ly). Just recently, the tea-producing
Sosrodjojo family acquired the controversial Bali Pecatu property
project. The low-profile Sosro Group joined the fray through PT Asia
Pasifik Property, which has acquired land worth 100 billion rupiah and
will invest up to 600 billion rupiah in Pecatu Indah Resort in Bali.

How good is the market? Developers would claim high subscription rates
-- even before the project has started -- just like in the old days.
But oversupply is already next door.

Financial reports of listed property companies might give a better
picture. While most companies reported impressive sales growth in
2003-04, they reported a slowdown last year and in 1Q2006. Lippo
Karawaci reported a 2.2% revenue growth in 1Q2006; Bakrieland had 5%.
Duta Pertiwi, the property arm of Sinar Mas, recorded a 7% revenue
drop from 1Q2005 results.

Financing issue

Again, like in the old days, developers are increasingly turning to
the capital market to raise funds. Lippo Group and Bakrieland got some
through a rights issue. Ciputra Group is taking the same path to
finance its three trillion rupiah acquisitions in the pipeline.
Bakrieland is working on a domestic bond issuance of 300 billion
rupiah following last year's rights issue of 650 billion rupiah. Even
the most conservative group, Agung Podomoro, the largest property
company in Indonesia, initiated a bond issue in 2004, a major shift
for a company that had relied on customer payments to build new
projects. Summarecon, another conservative giant, issued two bonds in
the past three years and raised funds through an IPO last year.

The international financial market has been increasingly used as a
funding source. Lippo Group claimed to have attracted high interest

from international investors as regards its US$250 million bond issue
and its $300 million Singapore-listed REITs. Bakrieland is planning a
US$150 million bond issuance, Pakuwon Djati's is worth US$120 million,
and Plaza Indonesia is getting a US$150 million syndication loan
arranged by Sumitomo Mitsui Banking Corp.

However, even domestic bank lending to the property sector is growing
at an alarming rate. While overall bank lending increased 57.87% from
January 2004 to March 2006, property loans jumped 110.77%, the highest
compared to other sectors of the economy. Surprisingly, the central
bank's survey late last year was more reassuring than other surveys
conducted by property research companies.

While occupancy rates for malls, office buildings, apartments and
hotels have improved in the past few years, the scale of the new
projects is worrying. There are 55 new apartment projects in Jakarta
alone, with an additional 32,600 units by 2008. Surveys confirmed that
most were bought for investment. And, the city is rife with rumours
about increasing payables to contractors.

Bank Indonesia's March survey revealed that the occupancy rate for
leased apartments has dropped from its high last September. In the
office market, there has been no improvement despite decreasing rent
tariffs since last October. Additional supply will surely push down
both occupancy rates and average selling price/rent tariffs.

As for malls, an additional 148,000 sq m entered the market last year,
to be followed by 760,000 sq m this year. Occupancy rates at trade
centres are predicted at just under 70%, a drop from 80% last year.

Reports from listed property companies in 1Q2006 revealed a slowdown
with no signs of significant increase in FDI. Roadshows done in the
last few months to attract foreign investors garnered investment
commitments to the tune of tens of billions of US dollars. Problem is,
only a small fraction of these commitments has materialised.

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Joyo Indonesia News Service
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