After years of high growth, Indonesia’s property sector is facing up to the reality of long-term downturn as consumer spending diminishes and businesses downsize in the wake of the lingering impact of the Covid-19 pandemic.
And with the health pandemic showing no signs of easing anytime soon, property players are bracing themselves for some tough times ahead. Jakarta governor Anis Baswedan has extended the transition period for the large-scale social distancing (PSBB) protocols until the end of July while East Java has emerged as the new epicenter for the corona virus epidemic in the country.
Data from the Indonesia Statistic Agency show in Q1, the property industry grew slower at 3.83% compared to the previous year’s growth rate of 5.40%. This has huge implications for the overall economy given that the property sector contributes around 2.8% to total GDP.
Going into Q2 data which will be released soon, property sector is expected to contracted deeper as overall GDP is expected to contracted by -3.8%.
Given the property sector’s heavy reliance on macro-economic and consumer growth, the government’s decision in early July to allow modern retail malls and offices to open at 50% capacity was highly welcomed. Restarting economic activity is crucial to the financial health of the property sector, in particular retail players who have been starved of income.
Director of Pollux Properti Indonesia, Maikel Tanuwidjaja told the Indonesia Economic Forum that the company has revised its sales targets to more realistic levels and is rescheduling the new projects to early next year. Currently the developer is focusing on completing hand overs of more visible ongoing projects such as Superblock Batam, Chadstone Cikarang and World Capital Tower to secure continuity of cash flow and revenue streams.
“The second quarter was heavily challenging for us as we have to maintain cash flow. Our mindset at the moment is ‘more revenue less cost’ to be able to survive. We also adopted new strategies during Post-Covid 19 such as digital marketing and improving health protocols in our buildings,” he said. “Going forward, our new projects will be more equipped with touchless technology such as sensor system to limit human touch.”
Maikel believe if the vaccine is discovered or if the pandemic spread rate in Indonesia is brought under control in Q3, property sector will experience a boom period in 2021.
Meanwhile, Harun Hajadi, Director of Ciputra Development admitted that the company didn’t plan any new pivoting steps for the next 12 months. Instead, they are focusing on how to avoid laying off employees. In the first half of 2020, Ciputra did not stop ongoing projects and the construction process has been running normally.
Unfortunately, in terms of sales, there has been a 30% drop compared to H1 2019 when sales reached US$162 million (Rp2.4 trillion). However the sales numbers have not been as bad initial forecast indicated and the company is revising its sales target to US$452.2 million (Rp6.7 trillion) this year. The challenge, according to Harun, is to survive the pandemic as home buyers are not spending.
“We are currently doing a study on how Covid-19 has disrupted the property market. One thing is certain, it is facing a sharp downturn because at the time of crisis big ticket items such as property are not a priority as people are more concerned with daily basic needs,” he noted. “We are managing the situation on a daily basis as it is continuously changing and its impossible to adopt a blanket policy until the pandemic is over.”
Harun warned that there is a chance of a second wave hitting Indonesia and business leaders must be prepared to stay united with their employees and show leadership.
Consumer Trend
With many developers struggling to offload units, the pendulum has shifted to buyers, according to Country Manager of Rumah.com Marine Novita. She noted that during crisis, many developers offer steep discounts to attract new buyers.
Along with Intuit Research from Singapore, Rumah.com surveyed 1,000 property consumers in Indonesia during H2 2019 to gauge their buying power in the H1 2020. The study revealed that most consumers (79%) are willing to buy a house that is priced at US$53,328 (Rp 790 million) close to Jakarta in the near term, while 40% said they would wait one to two years before buying a house.
“Most of them (75%) are millennials and they think the interest rate from banks are too high even though the central bank hasn’t increased interest rates over the last 12 months. Also most of them (29%) preferred Islamic banks compared to conventional banks due to lower interest rates,” she said.
Other Related Business Is Affected
The downturn in the property sector has also impacted suppliers of housing materials as evidenced by the quietness in the shops along Panglima Polim. A hive of hustle and bustle during normal times, the shops along Panglima Polim are a barometer of economic health and consumer confidence in the country.
Budi, owner of “Maju Berkat” building materials store at Panglima Polim admitted that during the full large scale social distancing imposed since March, his sales revenue has dropped by 66% compared to before Covid-19.
“At the moment, buyers both from individuals and distributors are starting to come back but I am only able to recover 30% of my pre-Covid 19 customers,” he said. Before the pandemic, many customers came from Pondok Indah, Pondok Pinang, Pondok Betung, Pondok Aren and other regions in South Jakarta.”
Other shops along the busy street face a similar predicament. Business is picking up but early fast enough to stave off closures is the situation persists over the next few months.
The Chairman of Indonesia Ceramic Association (Asaki) Edy Suyanto noted other building material centers such as Pinangsia and Percetakan Negara are facing a similar situation as more than five ceramics factories had to shut down during the lock down. He hopes the industry will soon recover.
While the immediate outlook for the property sector looks dim, property players, both developers and building material supplies remain confident that the turnaround will be strong and holding on in the interim will be critical.