CLSA Jakarta surveyed 8 major banks and learned that most of the over the counter rates have fallen to below 10%. These are low rates by Indonesian standards. We believe that prolonged low rates will help fueling demand for property in Indonesia.
The 10Y bond yield chart below highlights that the rupiah rates are trending down, contrary to the rising US$ rate in the US. There is little pressure on Bank Indonesia to hike interest rates and Bank Indonesia can also be relaxed because rupiah appreciation is helping to curb imported price pressures. As noted by our economist Tony Nafte, our seasonally adjusted series shows inflation also moderating in QoQ terms to 3.8% saar in March from around 5% in the first two months of the year. Moreover, at currently 6.5%, Indonesian benchmark interest rate is still very competitive, the highest in the region.
Clearly, buying a property is not merely a function of interest rate and affordability (houses in Jakarta remain extremely affordable btw, at a 7.1x price-to-income ratio as opposed to 13.2x in Hong Kong), but also about confidence. The fact that the rupiah, stock and bond markets continued to be very firm during the peak of Bank Century saga tells us a powerful message: local confidence remains unshaken.
Another interesting thing to highlight is consumer confidence (Danareksa survey) rising to 86.8 in March fully reversing the February MoM dip. Consumer confidence at these buoyant levels reinforces the stronger confidence.
All above bode well for Indonesian property. Investors can choose to either invest directly in property stocks (top picks SMRA, BSDE, and we also like deep value CTRS from Ciputra Group) or investing indirectly in cement stocks (SMCB IJ and INTP IJ) and mortgage bank BTN (BBTN IJ). We recently initiated coverage on BBTN with a BUY call and TP of Rp2,000.
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