House, apartment prices continue to rise but bubble 'unlikely'
The Jakarta Post
The Indonesian property industry has claimed that the residential segment ' both houses and apartments ' is unlikely to turn into a bubble.
Developers say price rises of properties in the segment of up to 70 percent are still within the bounds of purchasing power and market mechanisms.
PT Sinar Mas Land corporate strategic director Ishak Chandra said prices of residential units at their projects had risen by between 40 and 70 percent since the start of the year.
Sinar Mas Land subsidiary, PT Bumi Serpong Damai (BSDE), oversees the Bumi Serpong Damai City township in Serpong, Banten, which borders Jakarta. 'At the start of last year, the price was roughly Rp 4 million (US$397) per square meter, but prices are around Rp 8 million per square meter this year,' Ishak said in a recent interview.
However, he noted that the rise was a 'natural' consequence of facility upgrades within the township, including the addition of points of access into the area, like railway lines.
He said that the rising prices did not amount to a bubble forming because property investors here were not desperate to score sales.
'A bubble partly happens when investors are forced to sell or rent their units at low prices. As a result, they default on their mortgage payments, triggering an increase in non-performing loans at banks,' he said.
'However, the financial fundamentals of our property investors are strong, given that they belong to the middle and upper segment. Hence, they have no problem in holding on to their properties until they can sell or rent them at the right price to avert credit default.'
A Jones Lang LaSalle report shows that condominium prices in Jakarta rose between 11 and 17 percent on average between the first half of 2012 and 2013, with up-market units priced at roughly Rp 30 million per square meter.
Meanwhile, a study on housing by Cushman and Wakefield reveals that sale prices in Greater Jakarta climbed 9 percent in the second half of 2012 compared to the first half.
PT Ciputra Property director Artadinata Djangkar said the company's apartment prices had jumped by 25 percent on average between the first quarters of 2012 and 2013.
'Those prices are for upper-end apartments, which we specialize in,' he said recently.
Ciputra Property (CTRP), a subsidiary of PT Ciputra Development (CTRA), handles projects involving stand-alone and integrated malls, offices and hotels. One such project is Ciputra World 1 with its Raffles Residence, an upscale apartment consisting of 88 units.
Investor relations head of PT Agung Podomoro Land, Wibisono, said the property segment was not heading toward a bubble because many buyers paid installments in cash. 'Cash installments make up 50 percent of payments for our housing project in Karawang, West Java, with the remaining being mortgages. Meanwhile, 80 percent of payments for our Green Bay project in Pluit, North Jakarta, are in cash,' he said.
Agung Podomoro Land (APLN) also focuses mainly on the middle and upper segment.
Cushman and Wakefield's study shows that mortgages are prominent among buyers in the lower and lower-middle segment but the composition dropped to 47 and 51 percent in the upper-middle and upper segments respectively.
Wibisono added that people preferred cash payments because it was free of mortgage interest and because 'some people buy homes for their children [for example].'
He further added that the lower supply of houses compared to demand acted as a buffer against a bubble by ensuring that purchases continue despite an uptick in prices.
Cushman and Wakefield reported that 307,342 houses were offered for sale in Greater Jakarta alone in 2012, representing a 2.83 percent year-on-year growth. An estimated 28 million people live in Greater Jakarta.
Jones Lang LaSalle associate director Anton Sitorus said property prices in Indonesia could be considered unreasonable if one needed more than the standard time to pay off a purchase. 'The current standard here is six years. In Beijing, China, a person would need 27 years to buy a house,' he said.
He added that the recent 'cooling down' measures implemented by Bank Indonesia would mitigate the possibility of a bubble forming.
Effective Sept. 1 for houses larger than 70 square meters, people buying second houses must pay a loan-to-value (LTV) ratio of 60 percent, with 50 percent LTV for third houses. An LTV ratio of 60 percent means bank can only provide a buyer with a mortgage of up to 60 percent of a house's purchase price.
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