Company Update

17 Februari 2021

Property Sector Update - 17 February 2021



Indonesian Property Forced to Redefine its Business


Residential Segment Going Up, Albeit Slowly

  • BSDE, CTRA and SMRA succeeded in achieving their marketing sales targets in FY20. The achievement was due to property sales recovery, which increased by more than 50% QoQ in 3Q20 and 4Q20.
  • Around 65% -70% of marketing sales came from landed house, even though the residential property price index grew flat at the 1.29% YoY level in FY20. Indonesia residential property relies heavily on mortgages which contributed 76% of the sales and increased by 4% YoY on average in FY20.
  • Apartment sales decreased 4% YoY, while retail tenant leasing decreased 6.7% YoY, followed by office leasing  (-7% YoY). Covid-19 and PSBB are the main cause of the low absorption and rental rates in FY20.


Expected to Re-strategies to offer Better Value

  • Residential: Marketing sales can potentially increase along with recovering people's purchasing power : 1) Lower mortgage interest rate (currently at the 8%-9% level), as 7-DRRR is still at the 3.75% level; 2) WFH implementation within companies; 3) Affordable price at IDR500-IDR1.5 billion per unit; and 4) Complete facilities that connect to public facilities. We expect that can provide marketing sales slightly grew by 5% and 7% in FY21E/FY22F, plus the possibility of more relaxed LTV and PPnBM by the Government.
  • High-rise: Omnibus law allows foreign citizens to own property in Indonesia. However, Covid-19 cases remain high, and the number of foreign citizen counts is lower than pre-pandemic condition. Nevertheless, there are still good sentiments, such as: 1) stabilization of exchange rate; 2) The vaccine rollout, which are expected to suppress Covid-19 in Indonesia; 3) TOD concept still favorable.
  • Hotels: Throughout 2020, the occupancy rate can only reach below 50%. After the PSBB easing, hotels can return to operation with several rules as follows: 1) Maintaining a maximum room capacity of 25%; 2) The minimum distance between seats is 1.5 meters; 3) Buffet dining closure; 4) Obligation to wear a mask. Furthermore, tourism grant funds through the Decree of the Minister of Tourism and Creative Economy of the Republic of Indonesia Number KM/704/PL.07.02/M-K/2020, provide relaxation to current hotel operating costs.
  • Retail: The existence of "PSBB" and "PPKM" resulted in limited operations and decreased mall tenant rentals. Some developers discounted 50%-75% of service charges and rental fees. However, there are opportunities for improvement in 2Q21, due to: 1) Loosening of operating hours; 2) Vaccination that continues to be optimized; 3) Gradual recovery of people's purchasing power.


Downside Risk

  • The main downside risks are worse-than-expected pre-sales, economic growth, benchmark interest rates, bank interest in mortgage loans, and unfavorable regulatory as well as policy changes. Vaccine efficacy is important to improve the overall economy. If the efficacy is low, then the risk of spread is relatively high, overshadowed by a weakening economy.


OVERWEIGHT Recommendation for the Property Sector

We maintain the recommendation OVERWEIGHT outlook for Property sector in FY21E. The valuation is based on an average discount at the level of 55%-65% for NAV. It is also supported by positive catalysts from 1) Mortgage interest rates below 9%; 2) Implementation of the omnibus law. Our top choices are BSDE (BUY; TP: Rp1,600), SMRA (BUY; TP: Rp950) and CTRA (BUY; TP: Rp1,200). We note that these companies still rely on residential sales as their backbone, with averaging 64% of marketing sales coming from landed houses.


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