Fitch: Weak Indonesia Property Demand to Continue in 2016

BY :VANESHA MANUTURI

NOVEMBER 23, 2015

Jakarta. Property developers in Indonesia will likely continue to face sluggish demand next year as effects from the government's recent stimulus packages aren't likely to be seen until the second half of 2016, according to a recent memo by Fitch Ratings.

In a memo received by the Jakarta Globe on Monday, analysts at the global rating agency forecast that marketing sales among local property developers will grow between zero and 10 percent next year, dragged down by weak household consumption, which is slated to spill over to early next year.

"Fitch believes the economic stimulus packages announced by the government in the second half of 2015 will take time to translate into a meaningful and sustained increase in domestic demand," analysts at Fitch Ratings said in a statement.

"Indonesia has also started accelerating its infrastructure spending, albeit after severe delays and investment trailing initial targets, which opens up new areas for development and subsequently increases demand for property," the statement said.

The government has released six stimulus packages since September in an effort to revive consumption and the business climate across the country. The packages consist of deregulation and de-bureaucratization efforts, as well as several tax incentives.

The rating agency, which is among world's three largest, expects growth in Indonesia to reach 4.7 percent this year and 5.3 percent next year. In comparison, the government forecasts growth of 5.2 percent for this year and 5.3 percent for next year.

Fitch also warned of weakening liquidity and leverage among property developers next year, leading some to hold back on acquisitions, with Alam Sutera Realty cited as being most at risk.

Despite the gloomy outlook on the industry as a whole, Fitch maintains that six property developers -- include Lippo Karawaci, Pakuwon Jati, Alam Sutera Realty and Ciputra Residence -- will likely maintain their stance, due to a strong income stream.

"We expect homebuilders to continue to tailor their product mix towards lower value and smaller units in 2016 to cater to weaker consumer purchasing power," a Fitch analysts said.

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