Bright outlook for Indonesia property sector

KUALA LUMPUR: The property market outlook for Indonesia is bright, according to Hermawan Wijaya, a director of PT Bumi Serpong Damai Tbk (BSD). The developer is listed on the Jakarta Stock Exchange with a market capitalisation of 16.1 trillion rupiah (RM5.63 billion).

Hermawan said unlike Malaysia, Indonesia's mortgage credit stood at only 3% of gross domestic product (GDP) last year, with cash purchases of homes being the norm. Malaysia's household debt was 76% of its GDP, of which housing loans contributed nearly 50%.

And with the middle-income group in the world's fourth most populous country steadily rising, coupled with its still reasonable interest rates (benchmark overnight rate of 6.25% compared with Malaysia's 3%), demand for property is expected to grow.

In an interview with The Edge Financial Daily at the CIMB Asean Conference last week, Hermawan was bullish on the bright prospects of the property market in Indonesia which are awaiting BSD which is developing a 6,000ha township, 25km outside Jakarta. The township, a 10th of the size of Singapore, is called BSD City which comprises residential and commercial developments.

"We haven't seen a real slowdown in terms of property demand in Indonesia since the global financial crisis in 2008. One of the reasons is Indonesia's very low gearing," he said.

BSD investor relation manager Andreas Oen concurred, adding that interest rates in Indonesia are currently at an all-time low.

"The [benchmark overnight rate] is also quite conducive, and it went down again just two weeks ago (to 6.25%). Interest rates are hovering around 9% for a mortgage now. (Mortgage rates] have always been double digit ... this is another growth catalyst for property prices," he said.

Founded in 1984, BSD is primarily engaged in the planning and development of the BSD City project.

BSD City's master plan has three stages. Phase 1, with an area of about 1,500ha, is completed. Phase 2, with a land area of 2,000 ha, is currently under development and is expected to be completed in 2020.

BSD began BSD City's master plan in 1989 and the whole project is expected to complete in 2035.

According to Hermawan, the total gross development value of BSD City amounts to some 18 trillion rupiah, based on a land revaluation made in 2009, and without factoring in future appreciation. This translates into some 3 million rupiah per sq m , as compared to 20 million rupiah per sq m in South Jakarta and 15 million rupiah to 18 million rupiah per sq m in West Jakarta.

"There is plenty of room to grow and we can increase our price in the future," said Hermawan. "Our buyers are locals [mostly first home buyers and end users]. Our country's domestic consumption is quite significant. Therefore, we are not impacted by the current global headwinds," said Hermawan, adding that about 20% of BSD City buyers paid in cash, 30% by instalments and the balance via mortgages.

Oen added that BSD City currently houses more than 63 schools from kindergarten to high school, two universities, two hospitals, golf courses and some commercial and light industrial areas.

"So far we have developed more than 30,000 commercial and residential units. Right now some 150,000 people live in our area," he said.

Domestic consumption has been the backbone of the Indonesian economy, accounting for almost 75% of its total GDP and the current global economic headwinds don't appear to be a threat to its economy.

The biggest economy in Southeast Asia has also confirmed its position among the top rank of emerging markets by registering 6.1% growth in GDP last year.

But the unpredictable inflation rate could pose a threat to actual growth. Indonesia's consumer price index jumped some 10% in 2005 and 13% in 2006. Inflation dropped to 6.2% in 2007 before rising again to 9.8% in 2008. Then, it eased again to 4.8% in 2009 and 5.1% in 2010.

Oen said BSD is not fussed over the uncertain inflation rate. Housing prices have increased some 29% till September in Greater Jakarta, compared with 10% to 15% in the previous years.

"The supply of housing [including landed and apartments] in Jakarta is lagging at around 30,000 units per year. Demand is some 70,000 units per year," he said.

And with BCD City's strategic location with easy access to all of Jakarta's major toll roads, Oen said demand for its residential and commercial properties is expected to remain strong with demand starting to shift from central Jakarta to areas like those in the south.

Unilever Indonesia, a multinational food moving consumer goods (FMCG) company, will move its headquarters to BSD City in 2013, said Oen.

"We are also building a convention centre in Indonesia," he said. "There is a lot of demand for convention centres in Indonesia. The current largest one has an area of 50,000 to 60,000 square metres. We are building one with an initial size of 100,000 sq m, which can be expanded to 150,000 sq m in the future."

BSD is not going to stop there, said Hermawan. The company is now looking at developing another township in Balikpapan, a seaport on the east coast of Borneo. But details are still preliminary at this point, he added.

It is worth noting that BSD's revenue used to be derived solely from the BSD City project. However, in 2010 the company went on the acquisition trail and bought Duta Pertiwi (85.3%), Sinar Mas Teladan (60%), and Sinarmas Wisesa (55%), resulting in BSD City's contribution being reduced to about 60% of total group revenue.

Through Duta Pertiwi, BSD now owns some well-known commercial super blocks in Jakarta — Depok and in Surabaya. Recurring income now contributes some 25% of BSD's total income through the acquisition of these subsidiaries and Hermawan expects this figure to rise to 30% next year.

The company saw its net income in 2010 rise 27.7% to 394.4 billion rupiah from 308.7 billion rupiah a year earlier on the back of a slight increase in revenue to 2.47 trillion rupiah from 2.41 trillion rupiah. Total consolidated assets reached 11.69 trillion rupiah, with total liabilities amounting to 4.28 trillion rupiah and total equity was recorded at 6.13 trillion rupiah.