24 January 2020 (closed)
USD/IDR (13,647) +35.01 +0.26%
EUR/IDR (15,037) +20.88 +0.14%
Jakarta Composite Index (6,244.11) -5.10 -0.08%
Fitch Ratings, the global rating agency, expects slower growth in Indonesia's property sector for the next 12 months. However, for the longer term, the institution still maintains a positive outlook as Indonesia is characterized by high urbanization, a rapidly expanding middle class and low mortgage rates. Since the revival in 2011, the average selling price of Indonesia's residential properties increased by about 30 percent year-on-year, particularly in the Greater Jakarta area.
Notable examples that have posted robust growth are landed residential in Serpong/Tangerang, and high-rise residential properties in Jakarta's central business district, increasing 38 percent and 22 percent respectively, year-to-date. The institution believes Jakarta will continue to be the driver and benchmark for Indonesia's property prices as this mega-city is the center for business, government and education.
In the report, Fitch Ratings mentioned a number of issues to watch:
• Impact from new policy: The central bank’s move to raise its benchmark interest rate (BI rate) by 50 basis points to seven percent in late-August 2013 intensifies pressures on the mortgage market, especially after several new policies were introduced in July 2013, such as minimum down-payments.
• Slower presales in 2014: Fitch expects developers to post slower presales growth because of a temporary weakening in spending power coupled with a high average selling price base.
• Higher acquisition costs: Land acquisition costs increase in line with average selling price growth. Fitch also anticipates stricter government controls over new high-rise developments in Jakarta to further compress the overall margins of developers.
Ratings impact: neutral
"Fitch expects rated property developers to weather a more challenging operating environment in the next 12 months with sufficient liquidity buffers and a well-distributed debt maturity profile. Liquidity is largely supported by the presales model, which allows fast cash-collection cycles, as well as a steady recurring revenue base. Higher-rated property developers generally have a solid recurring interest cover ratio of 1x or above, indicating comfortable coverage to interest expenses. Another mitigating factor in the case of a slowdown is a large landbank reserve - averaging over five years of future development."