The New York-based credit rating agency expects property demand in Indonesia to remain sluggish in 2016 as the impact of recently unveiled government stimulus packages (aimed at boosting domestic demand) will not be felt until the second half of 2016. Government-led infrastructure development has also been slow during the first year of Joko Widodo's presidency. However, there are positive signs as government spending on infrastructure development has increased in the second half of 2015. Enhanced infrastructure development is important for the property sector as it opens up new areas for residential and commercial property development.

In its latest Indonesia Property Watch report, Fitch Ratings wrote that consolidated marketing sales for seven major Indonesian property developers declined by 59 percent year-on-year (y/y) in the third quarter of 2015, while the companies' aggregate leverage worsened to 35.5 percent by the end of Q3-2015. During the height of Indonesia's property boom in 2012, the net cash position was still marginal (with leverage at -3.6 percent). The rating agency expects sector leverage to remain high over the next year as weakening sales and capital generation will lag construction, particularly for those developers that are focused on high-rise building projects. Weakening liquidity and leverage is an issue for the country's developers in 2016, with Alam Sutera Realty cited as being most vulnerable.

Indonesian property developers' marketing sales are expected to grow between zero and 10 percent in 2016. Property developers that are considered strong due to solid income streams include Lippo Karawaci and Pakuwon Jati.

Given that Indonesian consumers' purchasing power has weakened, Fitch Ratings expects that Indonesian property developers will shift their focus to lower and smaller property units in 2016.

Fitch Ratings estimates that the Indonesian economy will expand 4.7 percent (y/y) this year and accelerate to 5.3 percent (y/y) in 2016.