Commercial Property

Impact on the state property sector in two years ago tend to slow down. Decline in purchasing power and higher lending rates to curb consumer wants, namely households and firms, bought the property.

Look at the trend growth of housing loans (mortgage) which describes the occupancy demand, which slowed from 37.8 percent in July 2008 to 10.6 percent in September 2009. At that time the average consumption rate perched on 16-16,8 percent level.

For consumers, rising mortgage interest credit means extra costs, which make the cost of increasingly expensive homes.

Not only residential property, the slowdown also hit the commercial property, ie units of offices, apartments, commercial units, and industry. Slowing economic growth led many businesses delaying the expansion of its business. The delay is clearly slowing growth in commercial property units sold or rented.

This can be seen on the lower level of occupancy (occupancy rate) of office and retail commercial units. Bank Indonesia data shows, in the Jakarta area, office occupancy rate decreased from 87.5 percent in December 2008 to 85.7 percent in September 2009. Similar conditions experienced by the retail trade units, from 89 percent to become 87.8 percent.

"Quiet" impact on the rental of commercial property depressed rents and selling prices of commercial units. Just look at rental prices per month office unit in the second quarter 2009 are down 2.9 percent and fell again in the third quarter of 2009 to 2.1 percent. Selling price (per square meter) also dropped to 7.2 percent and 3.5 percent in the same period. For the retail unit, the monthly rental price contracted from 2.6 percent to minus 0.7 percent.

Could this year's performance of the property back up?

Fortunately, as the improvement in global and domestic economic wheels of this year, property sector business people can come back smiling. Several factors seem conducive to help support the achievement of commercial property sales again shine.

Cheaper
The lower interest rates to support crucial property sector growth. Application of low interest rates certainly encouraging signal for the process of economic recovery.

Steps taken by monetary authorities, by cutting its benchmark interest rate, which started in December 2008, is expected to jump-start effective way for national economic recovery. The hope is, the transmission of this policy is visible in lower lending rates.

Entering the third quarter of 2009, interest working capital loans and investments are gradually shed despite the relatively slow acceleration. For example average interest working capital loans of commercial banks that had crept up, from 13 percent (June 2008) to 15.2 percent (January 2009), now move down to the level of 13.8 percent (January 2010).

Investment loan interest becomes lower, ie from 14.4 percent in January 2009 to 13.2 percent in January 2010.

Cheaper funding costs is certainly a cool breeze for property entrepreneurs who want to develop its business wing.

This can be seen in Figure 2, which indicates the relationship between changes in the commercial building license and the trend of lending rates for working capital.

When interest rates move down the working capital loans, the issuance of building permits moved higher commercial property. That is, when the pressure eased interest rates, developers are re-boost the development of new commercial property.

Rising confidence
Prospects are bright economic and industrial businesses also strengthen expectations will perform better. This is reflected in the Business Sentiment Index increased (ISB) Danareksa Research Institute (DRI) to 12.9 percent, from the level of 117.4 (March 2009) to the level of 132.5 (January 2010).

ISB increase indicates a more optimistic view of the CEO of industry and business conditions. This optimism will encourage more innovative and daring them to expand business to the area.

Furthermore, unpredictable, impact of business expansion through the development of new branches will grow the demand for commercial property, both at central and regional trade.

In the same period, expectations of sector CEOs showed the same real estate, which rose by 31.7 percent, from a level of 96.3 to 126.9 level.

Back view of the rise of property business also supported increasing the sales expectations, which looks at Sales Expectations Index (IEP).

IEP indeed been declining in the year 2009, but rebound in 2010. IEP in January 2010 moved to a level of 138.9 or an increase of 9.1 percent.

Rising sales of course positive effect on cash flows for the benefit of creditors and shareholders. Figure 3 shows the change in stock index return of property, representing investors' expectations about the prospects of growth in property companies that move along with changes in IEP.

Rising IEP is believed to be an important capital boost corporate financial performance, which will enhance shareholder value.

On the other hand, consumer confidence over the economy are also important in raising the performance of commercial property business. Households that optimistic about future income flows tend not resistant to increase spending and lending.

Current conditions indicate that household confidence in the economy and earnings on future increases, as shown in the Consumer Confidence Index (IKK) DRI. DRI IKK grow faster 3.9 percent, up from a level of 82.9 (February 2009) to level 86.8 (March 2010).

When consumer confidence over the economy increases (including on national and local economic prospects, employment opportunities and revenue streams), the potential of business sectors to move forward will be higher.

This condition triggers the increasing demand for commercial property to land new business. At that time, expectations of profitability and liquidity of the new commercial property development is also increasing and, ultimately, commercial property values fueled.

In addition, the rapid flow of income, which supported rising property values, support the decline in the probability of default property developers.

In addition, when the demand for residential properties is high, demand for commercial property also tends to strengthen. Economic attractiveness of residential areas causing the branches of a business or a new shopping center mushrooming.

On the other hand, expanding business wheel in the housing area provide added value which makes it more desirable consumers. Support infrastructure and commercial facilities that will hoist the full investment value of the area.

The discussion above shows the prospects for commercial property business is still kinclong. Strong capital from the strengthening of business and consumer optimism, the prospects of high demand for housing, and the trend decline in mortgage interest became the backbone of this sector. However, it will not be successful without the strong support of banking.

In addition to the downward trend of interest rates continues, banks are expected to open a larger credit tap into the real estate sector. Although the perception of risk in this sector is still high, the potential increase in value of investments that provide benefits also can not be underestimated.