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Gems in a booming Indonesian market

IN JAKARTA

WHEN the wind blows in Jakarta these days, you could well be blinded by a blast of sand and grit swept up from construction sites that seem to have sprung up everywhere.

Condominiums, offices, malls, mixed housing-retail-office complexes and even whole townships are in various stages of construction in the city – from the heart of downtown to suburban fringes.

Jakarta, as the eye can plainly see, is undergoing a building boom.

Powered by a steadily recovering economy and declining interest rates, the property market has been putting up a robust showing in the past year.

On the commercial front, landlords have been happily raising office rentals, riding on a swelling wave of demand as companies grow more confident, expanding into larger and better facilities.

In the first six months of this year, for instance, average gross rental rates outside the central business district (CBD) rose 14.2 per cent from the end of last year, according to the latest market review – for March to June – published last month by local property consultancy Procon Indah.

The same review indicated that the average occupancy rate of CBD office space scored a new post-Asian financial crisis high of 86.8 per cent, up from the previous quarter’s 84.5 per cent.

Outside the central business district, the average occupancy rate stood at 89.8 per cent for the first half of this year, up from 87.4 per cent at the end of last year.

Performance in the housing segment remained strong as well during Q2, even as more projects with competitive pricing flooded the market. The condominium market continued its growth trend of the first quarter, with cumulative sales rate reaching 94.2 per cent, said Procon Indah.

Meanwhile, land prices went up 6.7 per cent on average in Greater Jakarta residential estates. And with mortgage interest rates falling to an unprecedented 8.8 per cent, down from 12-14 per cent a few years ago, there is still potential for more sales growth, say analysts.

A similar story has been unfolding even more dramatically on the stock market, where property counters have been outpacing the general market bull.

In the last six months between the end of March and Friday last week, the Jakarta Composite Index rose 36.6 per cent, breaking through 2,500 points for the first time to close at 2,500.6 points.

But the property index did even better. Comprising some 30-plus counters, it scaled 72.1 per cent in the corresponding period to close at 246.5 points.

An important point to note here is that property shares remain the only channel for foreigners wanting some play in the sector, as they are barred from buying property directly.

But has the property market passed its peak? How much more upside can be expected for investors coming late into the game? Analysts acknowledge that it is unlikely for the sector to achieve similar breathtaking gains in the near future. Already, some are re-evaluating the net asset value (NAV) of several counters.

‘Popular listed developers like Summarecon Agung have already reached fair value,’ noted one analyst with a foreign brokerage. Several have even run ahead of their value, he added.

Still, there could be a few more gems waiting to be uncovered. Selected stocks like Ciputra Surya and Lippo Cikarang remain undervalued and have decent upside potential, say analysts. And should the government decide to open up property sales to foreigners – an idea that has been bandied about and discussed recently – another big boost can be expected. Such a major change, though, is not likely to happen this year.

‘But on the whole, much of the sales and planning have been done. We’re now moving into the construction phase,’ observed one analyst.

In that regard, it might be wiser and more profitable to look to the construction and raw materials sector, where the sun is just about to rise.

Analysts forecast a rise in construction activity in the next one to two years, based not only on the buzz in the private property sector, but even more so on an expected swell in state spending on sorely needed public infrastructure.

In the draft state budget for next year announced recently, the government raised the allocation for public works by 41 per cent, and that for transport by another 64 per cent.

The money will be spent on building new road networks, improving and constructing airports and railway lines.

As one analyst noted: ‘Elections are less than two years away. In that time, the government will want to demonstrate that it has done something to improve public infrastructure.’

Counters to watch include state-owned construction giant Adhi Karya, which is likely to land major government contracts, and Total Bangun Persada, a veteran brand-name in the industry. Investors are also eyeing the impending IPO of state-owned builder Wijaya Karya, due next month. Related sectors like cement production could be worth some attention too.

In short, there is still good gain to be had in the property and construction sector. It’s just a matter of knowing where to look. Take a cue from the sand and grit swirling in the city, for a start.

 

Source: Business Times 9 Oct 07

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