By Aulia R. Sungkar. Originally published in The Jakarta Post, on January 9, 2015.
Sunrise property’ is the current trend in property development, especially in commercially immature areas.
If you live in a city, chances are that you have seen promotional material offering what has recently been referred to as ‘sunrise property’, a phrase used to describe properties sold in lucrative areas capable of generating huge profits.
Currently, a number of mass media, textbooks and brochures offer information about what they call sunrise property. Property agents and marketing officers are using the gimmick to lure prospective customers and persuade the latter to invest in so-called sunrise property.
Despite the popularity of the term, there are no clear definitions of sunrise property.
What criteria can be used to determine whether or not a property can be included in the sunrise category?
According to PT Modernland Realty president director Andy K Natanael, properties can be categorized as sunrise if they are located in areas that are not commercially mature yet but are in an ongoing development progress to become an adequate and viable site of industrial and residential activities.
‘The development of these locations is still in progress; they are still equipping themselves with essential infrastructure: residential areas, open spaces and communal facilities.
‘[Because the developments are still in progress], they don’t have a complete set of facilities yet. For example, so far they have only residential areas and shops, while the other facilities are still in construction, in line with the master plan [for the development of the area],’ he was quoted as saying by kompas.com.
Aside from that, the locations for the sunrise properties are also in the process of equipping themselves with new infrastructure, including toll and arterial roads, railways and green open spaces, according to Andy.
‘When you find properties situated in locations that have the abovementioned characteristics, you can classify them within the sunrise category, as they are still developing themselves to be promising locations,’ he said.
Andy said that in the near future, sunrise property could experience a price growth of around 20 to 25 percent. The growth could be accelerated further if the accommodation outlined in the master plan for the property’s development ‘ including shops as well as educational, health, retail, entertainment and sports facilities ‘can be constructed adequately.
‘Progressive construction will surely jack up the value of properties. Conversely, areas that are already well-established will see slow price growth because of already-high property values. Developers can’t increase their prices any further because of [the market’s] limited capability to absorb prices,’he said.
He added that a customer needed to calculate prices and gauge situations very carefully when he or she was about to buy a sunrise property. According to him, this year is the right time to buy sunrise property, taking into account this year’s price increases, which are less than in 2012 and 2013.
‘Developers are now more realistic in devising their plans. This year, the price will increase by only 5 to 10 percent. That is why this year is the ideal moment to buy sunrise property after the market decelerated last year as a result of the political situation and other obstacles. Now it is time for the market to rebound,’he said.
Apparently, however, not all property observers see sunrise properties as this year’s most promising investment.
Indonesian Property Watch (IPW) executive director Ali Tranghanda said that this year customers would be more selective in their investment in property. This is caused by a number of factors, including the increased Bank Indonesia rate, which will make prospective buyers very careful with their investment decisions.
‘Although the market still retains its purchasing power, people will be more cautious in making decisions and they will tend to select projects that will provide them with fully-functioning facilities instead of ones that are merely speculative,’he was quoted by Antara as saying.
According to Ali, this is the reason why property projects that have clear concepts and certain distinctions are the ones that will survive this year.
He added that the mortgage rate, which is predicted to be set at around 13 to 14 percent this year, will make bank customers think twice before applying for mortgages. Because of this, developers’ survival is being tested by the progressive installment payment strategy.
‘Developers who plan to launch their project [this year] need to continue discussing to determine [the ideal time] for the project to be launched,’ he said.
Ali added that developers also needed to be vigilant about the BI rate increase, as it could potentially increase non-performing loans in the housing sector.
‘Like it or not, the possibility of non-performing loans in mortgages will affect the national banking scene,’he said, adding that people’s purchasing power would continue to decline with the increase of mortgage payment installments.
For example, he said that if prior to the BI rate increase consumers were able to pay approximately Rp 1 million (US$ 75.58) to 1.3 million per month for a house worth Rp 100 to 150 million, when the BI rate increases, the installments will increase to Rp 1.6 million to 1.8 million per month, an increase of 30 percent on average, thereby burdening consumers from the lower-middle socioeconomic bracket.
Ali estimated that customers would start to feel the impact of the BI rate hike in the first few months of this year. According to him, this condition occurs because in the last two years, the banking sector has applied relatively low interest rates of around 6.5 to 8 percent.
‘This year, customers will no longer be able to benefit from the fixed-interest facility in line with the increase in mortgage interest rates,’he said.
Things, however, are not as bad as they seem for the property sector.
Separately, stock market analyst Jimmy Dimas Wahyu predicted that the property sector would face a slowdown in the market this year.
‘A slowdown, however, should not be interpreted as a crisis,’he was quoted by tempo.co as saying.
He said that this was why the property sector would still have good prospects despite the slowdown. Why so? ‘Because a number of indicators like high population, demographic bonus, economic growth and income per capita potential continue to increase. This helps the property sector to avoid stagnation.
‘He said that Indonesia’s house prices reached their peak in 2011 and continued at that level until 2013. However, starting from last year, property prices started to decelerate by 25 percent. According to Jimmy, the price decline has also been compounded by the recent fuel-subsidy reduction. The inflation brought about by the cut has forced the central bank to increase its rate.
‘Therefore, [the BI rate hike] is a part of an economic cycle,’he said.
Another reason why he was sure that the property sector would remain positive this year was the fact that the sector primarily targeted the higher socioeconomic bracket ‘those who have a high amount of disposable income. Therefore, the sector would not lose its market.
‘Most of them have invested more than 24 percent of their whole portfolio for property projects,’he said, adding that they invested 16.3 percent of their assets in stocks and 18.1 percent in bonds.