Experts: Indonesia’s property firms set for bumper year

An Aerial view of apartments at the Meikarta real estate project in Bekasi, Indonesia. Indonesia’s property-related stocks are heading for a bumper year of returns, based on analyst predictions. - Bloomberg

JAKARTA: Indonesia’s property-related stocks are heading for a bumper year of returns, based on analyst predictions.

Shares of companies in a gauge of construction and real estate will surge 32% on average in the next year, according to data compiled by Bloomberg for which analysts’ price targets are available.

That’s more than for any other industry in Indonesia and peers in other Asian countries. With a 13% jump in 2019, the index is already one of the top performers.

Low interest rates and rebounding commodity prices are helping the industry, which has started to recover after suffering from dwindling demand. Sales of new homes grew 14% in the July-September period, after a 16% contraction in the previous quarter, according to a Bank Indonesia survey. High interest rates as well as large down payments were among concerns raised by respondents previously.

The decline in sales for major developers "is not sustainable,” said Bharat Joshi, an investment director for Aberdeen Standard Investments Indonesia. "Given the low interest rates, every banker in town is pushing mortgages,” he added.

Developers have also started moving away from high-ticket properties, favouring mass-market units that are more affordable, and that bodes well for the industry, the Jakarta-based manager said. Aberdeen Standard, which oversees US$2bil in Indonesian equities, increased investments in property shares in November, Joshi said.

The prospect of eased foreign ownership restrictions may also improve sales, said Leonardo Tukiman, an analyst at PT CGS-CIMB Sekuritas Indonesia.

Meanwhile, a recovery in crude palm-oil prices is expected to boost incomes and buoy consumer spending in a country where about 27% of the workforce is employed in agriculture, according to Badan Pusat Statistik, which conducts statistical surveys in Indonesia. Prices for palm-oil futures have jumped 36% this year, and analysts expect further gains next year on reduced supply.

Not everyone is as optimistic, though. The central bank’s policy rate cuts haven’t "helped much on demand,” and a lot depends on the extent to which commodity prices improve, said Lana Soelistianingsih, chief economist of Samuel Asset Management.

The leverage and interest coverage ratio of rated developers will remain weak through 2020 due to high debt levels, according to Moody’s Investors Service Inc. Refinancing risk, too, is expected to rise over the next 12 to 18 months.

The credit rating agency, however, expects mass-market residential and industrial property sales will rebound in 2020, after President Joko Widodo won office earlier this year on an agenda of infrastructure spending. "Continuing foreign investment and infrastructure spending will help support demand for industrial land development,” said Jacintha Poh, a senior credit officer at Moody’s.

"You have an environment where interest rates are low, banks are keen to pursue mortgages given this low credit growth environment, and you have the buyers just waiting to gobble some of the inventory,” said Aberdeen Standard’s Joshi. - Bloomberg
Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

Indonesia , Property , Bumper Year , 2020


Next In Regional

Chinese tech names among the fastest growing valuable brands in the world but US companies still dominate
China’s TikTok gets its own web version as user growth plateaus, nearing the country’s total mobile user base
India tests longer-range drone flights, eyes Covid-19 vaccine deliveries
Amazon bans Chinese merchants for alleged attempts to bribe customers to write good reviews
Bitcoin crackdown sends graphics cards prices plummeting in China after Sichuan terminated mining operations
Hong Kong police to boost computing power for new anti-money-laundering squad to help screen surge in suspicious financial transactions
Covid-19: 4,743 new cases bring total to 705,762
ByteDance founder donates US$77mil to education fund
Covid-19: Over six million doses of vaccines given as of Monday (June 21)
China’s short-form video market soars amidst pandemic year, study shows

Stories You'll Enjoy