Strong CBD condo prices, Premier Wen to visit Indo - CLSA

It is interesting to note that condominium prices in prime Jakarta locations grew in 1Q11. With demand exceeding supply, the property consulting firm Cushman & Wakefield reported that the average price of condo across Jakarta up 4.2% QoQ to US$2,025/psm (still very cheap by regional standard).

Note that approximately half of the condo buyers are investors instead of end-users (your beloved stock brokers and landlords wannabees are no exception here). This is in contrast to the buyers of landed property, of which only an estimated 10% are investors. Condo buyers in Jakarta generally expect to earn a yummy 10% rental yield and not much price appreciation, so price increase is a nice surprise.

Why the strength in condo prices? We suspect the demand for condos is higher because traffic is becoming more and more congested especially in the Jakarta CBD areas. It may take hours to travel to our favorite developers in the western part of greater Jakarta. Granted not a typical day, but a little bit of rain easily sets back traffic to 3-4 hours.

We also think that another reason for the strong demand for condo is the strength of the rupiah and low interest rate environment. Confidence plays a big part here. The same factors perhaps explain the strong prices of landed properties, Indo artworks, and stock market. Like many Asians contemporaries, rich Indonesians used to store their wealth in US$. No wonder the US$ is the most over-owned assets in the world. No more. Nowadays, wealth is stored in real assets in Indonesia.

For Indo property exposure, we like Bumi Serpong (BSDE IJ) and Summarecon (SMRA IJ). While the PER looks high for these property companies (21x and 24x 11 PER for BSDE and SMRA respectively), Sarina’s assumption is conservative with single digit sales growth assumption. Good chance that this might have to be upgraded.

Just this morning, we saw BBRI offers mortgages for the buyers of condos at one of the Lippo Karawaci (LPKR IJ) projects. One of the top mortgage players BCA (BBCA IJ) too is getting more aggressive by lowering the rates for their widely popular mortgage products (capped at 10% for the first 5 years, previously 11%).

Perhaps recognizing the housing opportunities here, state owned Chinese company Metallurgical Corp of China is reputedly considering to invest US$110mn in a low cost housing project in Tangerang + Banten (part of Greater Jakarta). The project will eventually cover 10,900 ha of land and Chinese government may provide the loan financing.

This is going to be one of the projects that the Chinese are looking at here. Chinese Prime Minister Wen Jiabao will sign a series of agreement end of this month when visiting Jakarta. The deals will cover everything from banking and energy to palm oil and infrastructure. Nick Cashmore’s Chindonesia theme is well alive and kicking.