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Selasa, 18 Januari 2011

CLSA INDO: property sector as inflation hedge

CLSA Jakarta property analyst Sarina reviews Indonesia property sector.  With investors focusing on the inflation risk in this part of the world, Sarina reminds us land price appreciation is also a kind of inflation.  The good news is that land historically has performed well as an inflation hedge. 

In Indonesia, we don't get big volatility as in the "hot" markets like Hong Kong or Singapore.  Nevertheless, property prices in Jakarta has been steadily moving up.  One of our colleagues sold his apartment in Jakarta in December 2010, only to learn that the price has moved up by another 4-5% when he received the payment this month.  Apparently he was a bit too eager to monetize the 50% capital gain since he bought the unit two years ago.  Well, he is certainly quite eager now finding ways to cancel the sale agreement.

For 2011, developers mentioned that they will increase prices further. For instance, Bumi Serpong (BSDE IJ) plans to increase prices by up to 15%. They will also launch property for the higher segment market at Rp5m psm (39% higher than in 2010).

Despite higher prices, there is no sign of any bubble formation yet.   Remember that we are starting from a very low base and the property market as a whole is still very unleveraged compared to more developed markets.  Property-related loans accounted for only 2.1% of GDP, despite a 25% cagr.  In fact it is still more difficult to get mortgages for condos.  Note that ultra conservative lender BCA has just started mortgaging condos tells you there is still a long way to go. 

Property stocks has recently been hit hard on inflation concerns and regulatory headwinds.  A new law was passed requiring developers to build at least 20% before it can do pre-sales.  On the surface, it looks like the new regulation will hurt all property players. Sarina thinks the new regulation will weed out developers with weak balance sheet and essentially creating higher entry barrier for new players.

Our top picks are Lippo Karawaci (LPKR IJ) and Bumi Serpong (BSDE IJ).  Both companies have just completed rights issue for expansion. We like BSDE for its large good quality land bank and strong margins. We like LPKR as a strong direct play to the nascent healthcare industry.


Property site visit comments by Nick Cashmore

Nick visited the western part of greater Jakarta - Alam Sutera (ASRI IJ), Bumi Serpong Damai (BSDE IJ), Lippo Karawaci (LPKR IJ).

Here are some snippets, pls see file for details:

Alam Sutera (ASRI IJ) - broke ground on two apartment as student hostel; both towers fully sold will build a total of six
Bumi Serpong Damai (BSDE IJ) – marketing sales to reach over US$400m this year and Unilever Indonesia (UNVR IJ) bought 3ha in the green office park at Rp3m psm

Lippo Karawaci (LPKR IJ) -  sold 60ha to Hankook Tire in Cikarang
Posted by Saham Pilihan at 11.35

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