Coronavirus threatens to derail Indonesia's housing market recovery, with sales of flats down almost a third

By Cheryl Arcibalcheryl.arcibal@scmp.com / https://www.scmp.com/business/article/3079611/coronavirus-threatens-derail-indonesias-housing-market-recovery-sales?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3079611 | April 20, 2020 10:50 AM SGT
The coronavirus outbreak is threatening the recovery of the Indonesian housing market, with sales of high-rise flats likely to fall 30 per cent in the first quarter, according to property consultancy Cushman & Wakefield.
The forecast came in the wake of Fitch Rating's revision of its outlook for Southeast Asia's largest economy's homebuilding sector from stable to negative on April 1, citing "unprecedented weakening in domestic demand as the coronavirus pandemic engulfs the country."
Another credit ratings agency, Moody's, meanwhile, noted that the Indonesian rupiah's slide against the US dollar to its weakest level since the 1998 Asian financial crisis had impaired the ability of the country's developers to pay debts. 
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In the second half of 2019, Indonesia's housing market was beginning to show signs of recovery " as transactions picked up after a period of political instability. Buyers were mostly end users, suggesting an improvement in fundamentals. 
"The overall residential market is expected to soften in the first half of 2020," said David Cheadle, managing director at Cushman & Wakefield Indonesia. "Several developers are already facing cash flow difficulties, with the Covid-19 outbreak disrupting developer revenues due to declining sales, with far fewer prospective-buyer inspections to housing projects caused by social distancing restrictions and work-from-home policies adding to the constant burden of construction loan interest rates of around 10 to 11 per cent of the loan value."
The impact of the virus began to be felt in March, when sales of apartments were estimated to be lower by 25 to 30 per cent in the quarter than the average of 2,400 units in the final two quarters of 2019.
Sales of landed residential units, meanwhile, dropped 2 to 3 per cent in March from the previous month, according to Arief Rahardjo, director of research at Cushman in Indonesia.
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Hong Kong-based Swire Properties, which partnered with Jakarta Setiabudi Internasional for the development of a luxury residential project of over 400 units in the Indonesian capital, said the country is not immune to the impact of the pandemic.
"The global economy has been hit by the Covid-19 outbreak," said a Swire Properties' spokesperson. "Jakarta is no exception and its residential market has been impacted. However, we are confident in its long-term development."
Swire's project is set to be completed in 2023.
Jakarta has so far reported more than 3,800 Covid-19 cases, with a death toll of more than 320. The Indonesian government has implemented social distancing rules in Southeast Asia's most populous country to stem the spread of the infection that has afflicted nearly two million people globally and claimed the lives of 114,000.
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The housing market took a hit in the first half 2019 when unrest hit the capital following a presidential poll in which former general Prabowo Subianto refused to accept defeat against incumbent President Joko Widodo.
Just before the pandemic took hold, demand was finally picking up in the Greater Jakarta landed residential market, with the average number of housing units sold rising 28.9 units per month per estate in the second semester of 2019, according to data from Cushman.
The average monthly take-up value also improved to about 43.1 billion Indonesian rupiah (US$258,000) per estate, higher by a third.
Rental and serviced apartment projects in the capital had slightly improved their occupancy rates in the fourth quarter.
But all these could be undone by the pandemic, with the middle segment of the housing market particularly vulnerable to the downturn as buyers typically seek loans for their purchase. The segment accounts for half of the home sales in the Greater Jakarta area.
"With the increasingly sluggish economic conditions and the worst yet to come for the Covid-19 outbreak, ability of the middle segment homeowners to meet their mortgage instalments will be greatly affected," Cheadle said.
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