CLSA Property Sector

Property Sector visit, from Nico Oentung

Our banking analyst and poker champ Nico Oentung has taken over property sector coverage from Daniel Oen (who is now enjoying his life as at the sales desk). Yesterday, Nico was visiting several large property developers for a business update.

Unlike in many other places, property price in Indonesia has been resilient, which is a stark contrast to some other places. Reason? Property prices in Indonesia has only gone up in line with inflation in the last few years. No big and exciting boom here.

Plus, the finance industry in Indonesia is still immature: about 30% of population have a savings account, less than 3% have credit cards, and less than 1% invest in stocks. May be one of the reasons why the economy is not hit as much by the financial crisis.

And equally important is the fact that most property owners here do not finance their property purchases with mortgage. Mortgage to GDP ratio here is about 2%, tiny compared to around 10% in the neighboring countries, let alone comparing it with the western world. So, there is no rush to sell when things get ugly.

One interesting point from Nico’s visit is that developers are now focusing more on faster moving low-middle income residential units. This particular segment of the market relies heavily on mortgages to finance their property purchase (most leveraged to mortgages are developers CTRA, SMRA, and BSDE as more than 50% of pre-sales come are mortgage financed)

This may be a timely move by property developers as banks have also started lowering mortgage rates again as liquidity in the banking sector is improving. Bank Permata (BNLI IJ), CIMB Niaga (BNGA IJ), and BCA (BBCA IJ) are the active names in the mortgage market. BNGA offers 5.5% fixed for 1 year and BBCA offers 12.5% fix and cap products.

Also worth mentioning that the most liquid names in the sector are Ciputra Development (CTRA IJ) and Bakrieland (ELTY IJ). The latter name is also a beneficiary of the proposed governmental relaxation of foreign property ownership (foreigners may control high-end apartments for 70 years).

Key points from his report:
Managements are generally cautious on the outlook.
With improving liquidity situation, banks are starting to lower mortgage rates.
Focus will be on faster moving low-middle income residential units.
Little demand for high-end residential (yeah, this is the crisis of the rich)
Property companies have drawn down unused credit lines and liquidity management is priority.