During the course of the ongoing global economic crisis, people will naturally come to ask whether it is wise to consider property investment. The property sector will take a hit, no argument there, but keep in mind that opportunity presents itself to those who seek.
One of the lesser known property investment opportunities, which tends to be overlooked, is buying at a pre-launch price. This type of buying — when the project itself is still on paper — is not so favorable, as it is as risky as it is intricate.
Ordinary buyers and investors tend to have a ‘cash and carry’ mentality — they don’t feel comfortable investing in an unseen object. Nevertheless, a number of experienced buyers and investors are aware of the value brought to the table.
In general we can say that the offering of a pre-launch price by a developer is part of their effort to gain credibility for their project. That way, when the project is ready to launch, they can justifiably affirm that such and such a percent of the offered space has already sold.
As a matter of fact, this sort of promotion will certainly lend good standing to a project’s image. In addition to the promotional value, the developer will unquestionably make good use of the funds received from early bird investors.
In order to achieve this end, most developers will not hesitate to sell the offered pre-launch space at very low margin or even at cost price! The average margin between a pre-launch offering price and the normal price is between 20 and 25 percent.
Statistics, based on a study by Procon, show that most developers reserve 15 percent of a property’s total space for pre-launch offering; some reserve as much as 20 percent. Property projects take between six and twelve months to go from the pre-launch to the grand launch.
Take as an example the case of Setiabudi Residences. Initially offered at Rp 800 million at a pre-launch in December 2004, the value increased to reach between Rp 1.5 to Rp 1.7 billion in mid 2008.
The Capital Residences are another example of the pre-launch game allowing buyers and investors to grow their investment seeds. Property bought at Rp 2.1 billion at the pre-launch in December 2004 has thus far risen to between Rp 4 to Rp 4.2 billion.
Offered at Rp 2.2 billion at a pre-launch in October 2003, Forum Senayan City was worth around Rp 3.4 billion just three years after the pre-launch.
A glance at this illustration is evidence that the margin of investment is still significantly higher than the current deposit interest rates of 10 or 11 percent per year.
This type of property buying may rest on the lingering question of whether a developer is trustworthy or not and if the project will progress as scheduled. This is where a credible property consultant plays its role, providing recommendations on selecting reliable developers and advising on pricing. Most importantly, these consultants have an idea of how much the investment might be worth in the future.
One fact seldom mentioned, despite repeated statements of oversupply, is that almost all available spaces offered have been sold.
Oversupply itself is largely due to the ongoing construction phase. Interestingly, once completed, the market has the tendency to immediately fill vacancies. According to Procon’s data from the third quarter of 2008, the sales rate in the Jakarta condominium market remained stable at 95.6 percent.
Looking back at the crisis of 1997-1998, we have learned a lesson that, even then, there was not a noticeable weakening in property value. Of course back then there were a number of abandoned property projects, but they had little impact on the value of already secured properties.
When comparing that period to the current situation in Indonesia, there is no need to be overly pessimistic. A few property projects will slowdown or even be abandoned, perhaps, but property values themselves will continue to grow, albeit at a lower rate.
Looking ahead, it is safe to say that the current global economic downturn will make it much harder for untrustworthy developers with bad track records to survive. Owing to its rock stable intrinsic value, nonetheless, the property market will remain a good alternative for investors.
Published in The Jakarta Post, on Nov. 28, 2008. By Evi Susanti, senior manager at Procon Indah