2010-02-09 04:02:54 - New Business market report from Business Monitor International: "Indonesia Real Estate Report Q1 2010"

Signs are emerging that Indonesia is recovering from the global financial crisis, with some earlier forecasts regarding the construction industry, such as Holcim's, now looking outdated and conservative. It would appear that action by the Indonesian central bank - which reduced its benchmark interest rate in early June for a seventh straight month by 25 basis points to 7% to help spur economic growth - as well as government infrastructure and stimulus spending programmes are beginning to have an effect. In September, Indonesia's rupiah climbed to its highest level against the dollar in 11 months, and the government's benchmark 10-year notes gained after Moody's Investors Service raised the nation's foreign- and local-currency sovereign debt ratings to Ba2, two steps below

investment grade, from Ba3. Indonesia's economy has been relatively resilient to the global contraction and is better positioned to face medium-term global challenges than many of its peers with a similar credit rating, Moody's said. Nevertheless, a tight credit situation has stalled many property projects at the initial stages. Delayed projects, a result of the difficulty in acquiring financing due to the economic climate, will help put a floor under occupancy and rental rates for Jakarta offices, according to commercial real estate agent Colliers International. There has been a slowdown in office leasing activities, although rental values appear to have stabilised after growing in Q109 and Q209. While not as severely affected by the economic recession as other South East Asian economies, the business climate remains challenging, although some developers and construction companies - as well as indicators such as cement usage - suggest the situation is improving steadily. Average occupancy rates of Grade A office space remain high, and average rental values are around IDR168,000 (US$15) per m2/month. Although uncertainty has diminished, only cautious optimism is justified for the remainder of 2009. The residential market has been affected by slow take-up, although with the elections out of the way, there is growing confidence, particularly in the middle to upper end of the market, as buyers return. Secondary market condominiums, particularly for two-bedroom units, remain sluggish, however. The outlook for the retail segment is less bright. Relatively high interest rates and difficulties in securing financing in the current climate are expected to lower prices. While a change in foreign property ownership laws would be likely to boost the sector, there are few signs that the government has the political will or ability to do this.

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