The worsening global economic conditions have caused a slowdown to the property sector in many regions, and Asia Pacific is no exception. While this declining trend has hit every sector of the property industry nationwide as well as locally, the office sector is the one that has suffered the worst impact.
The impact of this global downturn has put the lid on the growth of Asia Pacific’s property sector. Generally, countries with the most developed financial institutions are among the most affected by these negative impacts. These include Hong Kong, Taiwan, Japan, Australia and Singapore.
The estimated negative growth of the economies in these countries will put further downward pressure on the property market. Overall, it is predicted that the growth of the property sector in Asia Pacific will be very slow in the next two years.
In the office sector, many companies have delayed their expansion plans, whilst others have reduced their space due to the business slowdown. There is some correction taking place in Asia Pacific’s rent prices. The highest rent price in Asia Pacific is in Hong Kong, that is US$235.4 per month/m2 followed by Tokyo, Singapore and some other regions.
Jakarta and Kuala Lumpur are among the regions having the cheapest prices for office accommodation, of around $20 per month/m2.
It is predicted that this year the property market in Hong Kong will deteriorate. People who initially targeted Hong Kong as their investment destination are likely to put off their investment plans. Currently, Hong Kong offers the lowest yield for the property sector, in comparison with other countries.
The property yield in Hong Kong is now only between 2 and 5 percent. The number is far below the investment yield in Indonesia which is around 7 to 9 percent. Meanwhile, oversupply of property due to the decline of renting activity has also become a problem for some cities in China.
Even though there is a rent price correction in most of the Asia Pacific region, the rent price in Jakarta remains stable. Renting activities are still moving. Albeit with a slight decline in transactions, but not enough to cause a sharp correction in rent prices.
Compared to other countries in Asia Pacific, we can say that Indonesia’s property market is still considered in good shape. This is due to Indonesia’s relatively stable growth in the last five years, differing from other countries in Asia Pacific that have experienced relatively high growth during the past five years.
Capital value growth in Indonesia during 2003-2008 was relatively stable at around 7 percent. Meanwhile, Hong Kong experienced the highest growth at 32 percent followed by Singapore at 31 percent. Capital value growth in Shanghai was also high at 24 percent and Beijing was at 22 percent. And South Korea’s capital value growth stood at 9 percent. In the end, those high numbers have made negative impacts more visible.
In Indonesia, the growth of the office property sector and condominiums in 2009 is predicted to slow down due to the global crisis.
In the meantime, Bank Indonesia again has lowered the BI rate to 7 percent. This means that Bank Indonesia has cumulatively lowered the rate for 225 bps since the beginning of 2009 in order to stimulate national economic growth.
The lowering of the BI rate since the beginning of this year has been followed by the lowering of interest rates for bank loans and deposits.
The lowering of the BI rate is expected to eventually increase demand in the property industry, especially for the housing and apartment sector. Apart from this, the successful legislative election is expected to regenerate optimism and confidence for both end-users and investors.
On the other hand, negative responses from developers should be anticipated due to the continuing global economic downturn, albeit banks are offering lower loan interest. Some projects will probably be postponed due to loan financing problems both for the project partners and their banks.
So, some developers will concentrate on selling their existing projects, rather than launching new products.
In the Central Business District (CBD) office market, factors such as the economic downturn and political uncertainties before the general election led to modest performance figures for the CBD office market during the first quarter of 2009.
Given the incoming new supply entering the office market in the next two years, coupled with modest demand in the market, the occupancy rate is predicted to experience a decrease to 84-85 percent until 2010. Relocating tenants are still the main source of demand for the CBD office market in the next two years.
The retail sector cannot escape the global economic recession because of the declining purchasing power of the society. The players in this sector can still hold on if they are supported by sound management concepts and the ability to adapt to market demand.
The high level of retail competition has influenced rental prices along with the weakening of global economic growth. National economic forecasts have resulted in limited expansion for retailers and downward pressures on rent prices.
Meanwhile, the future supply is predicted to be high for the next two years, even though there will be some delays in the completion schedule for some construction projects. It is predicted that around 290,000 m2 of retail space will be completed during 2009-2010.
With the decline of consumers’ purchasing power, some retailers will consolidate their not so profitable stores and this in turn will negatively affect the growth of retail space absorption.
The developers need to anticipate some demands from the retailers, where this can be translated into requiring a longer time for the return on retail investment.
To conclude, there has been a decline in the Asia Pacific property market. Many preventive strategic steps have been taken as a consequence. Indeed, the year 2009 will be a tough year for the property sector to survive, but on the other hand there are still many sectors expected to continue to grow.
Despite all that, the Indonesia property sector is not experiencing a decline as bad as that of other countries in Asia Pacific region. One of the explanatory factors is that Indonesia is not a financial institution-dominated country, yet the country has relatively stable capital growth.
Published in The Jakarta Post on June 20, 2009. By Utami Prastiana, the associate director – of Procon research and consultancy.