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Property market hit by inflation, global interest rates
Financial services firm Moody’s Analytics has forecast a turbulent time ahead for the domestic real estate market as the Indonesian rupiah depreciates against the United States dollar.
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Breeze on the bridge: A man jogs along a bridge connecting the artificial Maju Island and the Jakarta mainland at Pantai Indah Kapuk, North Jakarta, in June 2019. (JP/Ricky Yudhistira)
T
he property industry is starting to feel the pinch of central banks across the globe raising benchmark interest rates to protect their currencies from United States Federal Reserve rate hikes.
Financial services firm Moody’s Analytics forecasts a turbulent time ahead for the domestic real estate market as the rupiah depreciates against the US dollar, which rose to 14,817 on Thursday amid rising capital outflows from Indonesia.
According to a publication released on June 9, six major real estate developers face elevated foreign exchange risks as two-thirds of their debts are denominated in dollars while their revenue is in rupiah.
This increases the burden for these companies as they try to pay back loans.
The real estate companies mentioned in the report are Agung Podomoro, Bumi Serpong Damai, Modernland Realty, Alam Sutera Realty, Lippo Karawaci and Pakuwon Jati.
Bank Indonesia (BI) data shows a net foreign capital outflow of Rp 7.34 trillion (US$494 million) from June 13 to 16, which consisted of Rp 6.75 trillion in outflows from government securities (SBN) and Rp 59 billion from the stock market.
“A weaker rupiah is credit negative for rated developers because the principal amounts and interest expense of their US dollar debt will increase in rupiah terms, thereby weakening their ability to service these obligations,” the report states.
