CLSA Indonesia’s property sector, enter the mortgage war

Nick Cashmore has just written an interesting 8-page report on Indonesia’s property sector.

(1) This is GROUND ZERO for Indonesia’s first housing-led rally.
Property share prices have factored in the first leg of the recovery, but this story has a long way to run.

(2) THE SECULAR STORY.
Urbanisation is a big theme here. By next year, more people will live in cities than in the rural areas.
Housing formation: households growing by 4.7mn every 5 years.
Jakarta is mega city with mega problems, it is the 4th fastest growing megacity in the world.
Most Indonesians view property as a great hedge on inflation, which is quite high historically (around 10% average in the past few decades).

(3) YET, THE PRICE IS SO CHEAP.
For US$4.4bn investors can buy Indonesia’s entire listed property sector in the world’s most densely populated island.

(4) And the immediate near term CATALYST: ENTER THE MORTGAGE WAR.
Bank Central Asia (BBCA IJ), Indonesia’s largest private sector bank by assets, is about to put the cat amongst the pigeons. The bank is considering re-launching an extremely competitive mortgage product similar to a promotion it first introduced in March 2007.

In 1Q07, BBCA decision to significantly lower the mortgage rates was the tipping point to substantial outperformance to property stocks in the subsequent three months. And marketing sales jumped 82% YoY in 2007, leading to a mini construction boom in Jakarta

We also have 2 property company reports:
Bumi Serpong Damai (BSDE IJ): the 4th fastest growing mega city in the world. Massive landbank: 2,950ha in western Jakarta, where residential demand is growing fast. Stock is at 75% discount to NAV.
Kawasan Industri Jababeka (KIJA IJ): property company with utility upside (or utility company with property upside? recurring income income from power plant + infrastructure services could be more than 50% revenue next year) when the 130MW power plant comes fully on line in 2010. Stock is at 66% discount to NAV.