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S & P sees stagnant growth in property
As the aggregate of January to September property sales moved at its slowest pace in the last five years, ratings agency Standard and Poorâs Rating Services revised down its sales estimate for local major real estate developers from initially double-digit growth to moderate growth in the next two years
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As the aggregate of January to September property sales moved at its slowest pace in the last five years, ratings agency Standard and Poor's Rating Services revised down its sales estimate for local major real estate developers from initially double-digit growth to moderate growth in the next two years.
S&P said in a recent report that it had decided to revise its forecast of five rated developers, which together have an aggregate of US$2 billion in rated US dollar notes.
'We have now lowered our forecast for property sales for Indonesian developers to be flat on average in 2016 and 2017, compared with an earlier assumption of more than 25 percent growth,' S&P said in the statement.
'The slowdown is a lot sharper than what we anticipated six months ago. Property sales of rated developers for the nine months ending Sept. 30, 2015, ranged between 25 percent and 72 percent of their budgeted sales for full-year 2015, their weakest performance since 2010.'
The slowdown, S&P said, was the result of two macroeconomic factors: the slowing of Indonesian gross domestic product (GDP) growth prospects and the sharp depreciation of the rupiah during the period.
The ratings agency further said that government-led initiatives to enhance tax collection and reduce tax delinquencies had also dampened demand. A stipulation requiring developers to obtain the tax identification number of prospective buyers had delayed sales and had prevented buyers with no such tax number from purchasing property.
The five companies rated are: Pakuwon Jati (B+/Positive), Kawasan Industri Jababeka (KIJA:B+/Stable), PT Modernland Realty Tbk. (B/Stable), Lippo Karawaci (BB-/Stable) and Alam Sutera Realty (B/Stable). B and BB-rated companies represent firms that basically have the capacity to meet its financial commitments. However, they are also burdened by particular speculative characteristics and challenges stemming from ongoing uncertainties or exposure to adverse business, financial or economic conditions.
S&P said that the largest downward revision to its aggregate 2015-2016 property sales was made to Modernland, with an estimation 40 percent lower than S&P's previous estimation. The revised estimation reflected a much slower ramp-up in Modernland's Jakarta Garden City project ' a 370-hectare township located in East Jakarta ' than the ratings agency had originally anticipated.
The ratings agency further revised downward its estimations for Alam Sutera and Lippo by about 35 percent each.
According to data provided by S&P, Modernland and Lippo reached only 48 percent of their respective property sales target in the first nine months of 2015, whereas Alam Sutera met only 25 percent of its full-year budgeted sales.
S&P, on the other hand, moderately revised its forecast for industrial property developer KIJA by 10 percent on average for 2015 and 2016 and left its projections for Pakuwon Jati unchanged.
'Both companies tend to be somewhat more conservative than larger domestic developers in their yearly budgeting and their marketing sales for the nine months ending Sept. 30, 2015, were broadly in-line with our earlier forecasts,' the agency said in the statement.
'KIJA is also involved in industrial land sales, which are driven more by foreign direct investment and are somewhat less susceptible to the regulatory uncertainties pervading the residential segment.'
By the end of the third quarter, Pakuwon Jati and KIJA reached 72 and 59 percent, respectively, of their original targets for 2015, according to the statement.
The statement noted that the revised forecasts were mostly neutral for rated developers, with the exception of Alam Sutera, where the ratings agency downgraded the developer to 'B' from 'B+' earlier in the month as the sales revision coincided with rising debt, partly on currency depreciation. (aml)
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