Economic Slowdown May Lower Real Estate Demand

Jakarta, Oct 21 (Antara) - Indonesia`s economic slowdown due to the global crisis could potentially reduce demand in the residential property sector. "Indonesia Property Watch (IPW) has taken into account the possibility of a decline in demand for real estate by at least 20 per cent in 2014, besides the slowing growth of property prices," said IPW Executive Director Ali Tranghanda IPW in a written statement received here on Monday. Ali noted that the drop in demand is caused by a variety of factors such as the increase in mortgage interest rates, the slowdown in purchasing power, and the Central Bank`s new regulation being implemented in the property financing sector. These issues impact property growth, which is expected to continue to slow down, with growth estimated at 25 percent in 2014. The current state of the property sector is part of a natural cycle. Since overall demand is still on the rise, it should not present a lasting problem to the industry. Moreover, the upper middle segment of the market has begun a shift to the lower middle segment, which largely serves the end user. "Developers have also started aiming for that market with a resizing strategy by selling the smaller properties at prices ranging from Rp500 million to 1 billion. This is expected to be the highlight of the 2014 property market," he stated. IPW estimates the slowdown cycle will continue into 2016, so developers should seek to target their cash flow more efficiently. Ali further remarked that consumer profiles will shift from short-term investment with speculative activities to end-user and long-term investment choices. He acknowledged that the slowdown in the property market began towards the end of 2013. "Supply and demand in the property sector is starting to show a relative decline. The IPW had previously predicted the property market would peak in 2013 and begin to slow in 2014. This is based on the observation that not many projects were launched in the last quarter of 2013," he said. On the other hand, the existing project sales are also experiencing a decline compared with previous years, he added. However, the downturn in the property market is a natural progression after the last few years, when property prices rose by more than 60 percent each year, making the property market sluggish. "Although it will not be as high as in previous years, the property market is expected to continue to grow 30-35 percent during 2013," he concluded.