Coronavirus’ Impacts on Indonesia’s Real Estate

Nora Setiawan

May 28, 2020

The global real estate industry is being battered by the coronavirus, and it’s still going on. The effect on real estate will vary by sectors and markets, while the extent of the effect will be depending on how long is the economic shutdown.

The sectors of real estate that have been hit hard are hotels, restaurants and other entertainment retail, especially in tourist areas. Then, followed by retail and housing, particularly second-home and luxury homes.

Supplies that the builders and developers need are being interrupted as the workers stay home, due to business close down, and quarantines. Huge numbers of layoffs also will lead to further contraction in consumer spending.

The effect on real estate may vary too, such as commercial real estate, like housing and homebuilding. The homebuilders got affected not only on the demand from home shoppers but also the supply impact of materials that they normally import from China. But, China’s factories and businesses are now restarting after being on hiatus for months.

In a new survey by NAHB, 81% of respondents said that coronavirus has an adverse effect on traffic of prospective home buyers, and it’s probably more now with the escalating lockdowns. Another 54% has reported they need to finish homes and gather the building materials.

However, this kind of situation also happens in Indonesia. Before the coronavirus strikes, the performance on the property sector had actually begun to rise positively if to be compared years ago.

But when the virus is coming, the property sector is having a hard time once again. To anticipate all of these, the government has provided stimulus packages. In March, Jokowi announced the government has prepared a budget of 1.5 trillion rupiah (US$104 million) into its subsidized housing program which is expected to cover financing for a further 175.000 new homes. Meanwhile, 800 billion rupiah (US$55 million) will be used to cover interest payments with the rest going to pay for subsidies.

Let’s take a look at Indonesia’s Real Estate!

Is Indonesia’s Real Estate Affected?

According to CNBC Indonesia, the decrease is not only for the sales but the loans that people need to pay as well. The difficulty of paying the loans at this time is high. However, The Chairman of DKI Jakarta REI Regional Management Board, Arvin F. Iskandar added that even the sales dropped, but you need the costs to maintain it. 

Currently, there is a significant decrease in turnover and volume of the property sales in the market. It will clearly have an impact on the ability to pay off the developers to banks for the debt obligations.

Arvin F. Iskandar also emphasized that almost all the progress of real estate projects in Greater Jakarta is affected by the outbreak. Especially those using materials or raw materials from Corona affected countries, and the developers have difficulties in bringing these materials as well.

With these situations, however, all the operational costs and loan interests must still be paid. The coronavirus impaction on Indonesia’s real estate is real and it might be getting worse as we don’t know yet, when this is gonna be over.

The big players in the property industry are at the same risk. Let’s mention Ciputra Group, through PT Ciputra Development Tbk (CTRA) and PT Intiland Tbk (DILD) are considering whether their ongoing property projects have to stop or keep continuing.

This year, Ciputra’s pre-sales are projected to grow by 9% from 2019, by 6.1 trillion rupiah to 6.7 trillion. But with this situation, the number may not be achieved yet.

Moreover, Head of Investor Relations & Corporate Finance Ciputra Development, Aditya Ciputra Sastrawinata explained positive catalysts that would drive incremental sales are the first home buyers or end-users that will buy houses with prices below 2 billion rupiah in which always in demand every year.

Chairperson of the Indonesian Real Estate Company (REI), Totok Lusida acknowledged that the effect had already spread and hit the national property sector. The current condition has the potential of reducing the productivity in building commercial real estate. Speaking about how long it will take or when it is gonna be ended, it is not easy to predict, but he hopes it will be back to normal as fast as possible, so the developers can continue their projects.

Indonesian real estate

To Fight The Outbreak Impaction

Aside from the government stimulus package, one of the developers, PT. Metropolitan Land, Tbk. (Metland), offered their latest promo, called ‘Book Now, Pay Later Deals.’ If consumers book one of the houses between April and May 2020, they can start to make the down payment in August 2020.

The program is believed to be able to attract buyers and facilitate consumers who are looking for houses in the midst of current conditions. The price ranges from 400 million rupiah to 3 billion rupiah.

According to Director of Metland, Nitik Hening added consumers can get more benefits in this new program, in which the developers will give them a subsidize 1% of Household Loan Credit (KPR) from Bank Mandiri and BCA, free in charge, free gifts such as kitchen set, air conditioning, and shopping voucher worth for 10 million rupiah.

While in Bekasi, PT. Mekar Agung Sejahtera (MAS) Group is developing commercial real estate with 10 acres called Britania, Bekasi. They would target the consumers from Greater Jakarta, including Bekasi. These houses are located in the Tambun area and consist of 3 clusters, and start from 200 million rupiah or more.

Director of MAS Group, Sengkono Dharmawan explained, he saw that Greater Jakarta area, especially East Jakarta and Bekasi, have the most potential of the development of this commercial real estate.

PT. Samudra Bangun Raya also has strategies to fight this situation. The developer of Villa Kebun Raya Estate has an optimism and commitment to continue the housing development amid this outbreak.  The technical marketing director of PT. Samudra Bangun Raya, Muhamad Solihin said, that his commitment as a developer is making sure that the development is still going on even in this condition. He acknowledged that he has the strategy to attract consumers by offering online promotions and giving special gifts.

Everybody knows the coronavirus strikes is getting every sector a hit hard, especially the property sector, but looking at how the developers fight this condition, we can see the signs that Indonesia’s real estate is indeed surviving and attracting more consumers nowadays.

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