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Developers see lower profits in first quarter

Publicly listed developers ended the first quarter with net profits either muted or having fallen due to the economic slowdown and tightened regulations, with analysts predicting challenges ahead will exert pressure on the sector

Anggi M. Lubis (The Jakarta Post)
Jakarta
Wed, May 6, 2015

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Developers see lower profits in first quarter

Publicly listed developers ended the first quarter with net profits either muted or having fallen due to the economic slowdown and tightened regulations, with analysts predicting challenges ahead will exert pressure on the sector.

Alam Sutera Realty, for instance, saw its bottom line stagnate atRp 319.05 billion (US$24.57 million) in the first three months of 2015, a rise of just 1.6 percent, despite a 13.72 percent year-on-year (yoy) increase in its first-quarter sales to Rp 990.65 billion.

The company, according to a published statement, saw a significant drop in sales of landed houses and shophouses '€” its sales backbone '€” from Rp 545 billion in the first quarter of last year to Rp 191.6 billion in the same period this year.

The plunging figure, however, was compensated by a surge in sales of plots of land from Rp 258.8 billion last year to Rp 713.1 billion, while its recurring income was up by 28 percent yoy to Rp 86 billion.

Other major developers, such Modernland Realty, Summarecon Agung and Pakuwon Jati, also reported significant declines in their January-March financial results.

Modernland suffered from the largest decline, with its bottom line falling by 53.52 percent on an annual basis to Rp 181.38 billion, while Pakuwon Jati registered around 15.6 percent in net-profit drop to
Rp 328.62 billion.

Summarecon, meanwhile, saw around a 10 percent plunge in its net profit to Rp 247.24 billion.

'€œPerformance of publicly listed companies in the first quarter was lower than expected, with no firms booking significant growth. Despite a backlog in marketing sales, companies performed below expectations due to slow construction,'€ Liliana S. Bambang from Mandiri Sekuritas said in a statement.

'€œIndicative marketing sales overall for the first quarter slipped by around 20 to 30 percent, although publicly listed firms still managed to book solid marketing sales by focusing on introducing new units under Rp 2 billion to secure their market grip by offering more attractive prices.'€

Property firms pointed to the government'€™s mortgage regulation and the country'€™s macroeconomic conditions as the key factors frustrating the market during the first six months of the year.

The biggest pressure came from Bank Indonesia'€™s loan-to-value (LTV) regulation, which requires first-time buyers to pay a minimum down payment of 30 percent on the value of a house. The minimum down payment is higher for additional houses. Developers argue that the regulation '€” which was introduced late last year to curb speculative buyers in the property market '€” has frightened away potential buyers.

The central bank'€™s interest rate '€” currently kept at a 7.5 percent '€” has also encouraged developers to scale back expansion and buyers to hold their investment.

'€œThere is still much uncertainty and noise over the new government'€™s regulatory policies ['€¦], the negatives include possibly large increases in taxes on property transactions, downward pressure on margins, and slower economic growth,'€ a DBS Vickers research report said.

The government is mulling a revision of property tax regulations in a bid to boost income from the sector.

Revisions include a reduction of the price floor for houses and apartments subject to a 5 percent income tax and luxury tax from the more than Rp 10 billion at present to Rp 2 billion.

DBS Vickers predicted that most developers under its coverage would book negative profit-growth this year '€” excepting Alam Sutera Realty and Lippo Karawaci '€” on the back of diversification strategies.

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