PROPERTY SECTOR UPDATE
A Ride on the Cloud
Marketing Sales started to grow in 3Q20
Property players recorded improvement in marketing sales in 3Q20, such as PWON IJ and CTRA IJ growing 65% QoQ and 100% QoQ, then SMRA IJ and LPKR IJ which recorded growth of more than 250% QoQ. However BSDE IJ and ASRI IJ posted stagnant growth in 3Q20. We note that, the average marketing sales reached 76.70% of the FY20E target. In the previous report (click here), we have seen an opportunity to sell property supported by the needs of first home buyers in a landed house segment, thus supporting marketing sales in 3Q20. SMRA IJ posted a strong 3Q20 marketing sales due to an increase in residential sales priced at IDR400 million-IDR1.7 trillion/unit in Serpong, Karawang and Bandung. This strategy was also carried out by LPKR IJ, which managed to sell 650 units a day ranging from IDR700 million-IDR1.5 billion. CTRA IJ managed to improve its performance supported by a massive sales in Medan and Jabodetabek area. Meanwhile, PWON IJ residential sales started to contribute to marketing sales in 3Q20, where 44% of total marketing sales was generated from residential sales.
Omnibus Law: Enables Foreigner to Own Property in Certain Areas
Omnibus Law, if implemented, will be giving space for property demand to grow, whereas verse 143 and 144 can be a potential gain from foreign ownership. Though it seems to be beneficial for apartment demands due to a foreign ownership right over the permitted building in accordance with the provisions of laws and regulations. Currently there is no Omnibus Law which states the classification of citizens who are allowed to own property in Indonesia, but if we look at the Agrarian Regulation No.29/2016, the conditions are foreign citizens whose existence provides benefits, does business, works, or invests in Indonesia.
We believe that developers can take advantage of property demand in certain areas that have traffic from foreigners. Jakarta, Batam and Bali are the main three areas that have the potential for property demand, especially high rises estates, because these three contributed 66% to the total tourist visits in FY19; it is opportunity for BSDE IJ, CTRA IJ, PWON IJ, SMRA IJ. In addition, the developer will maintain the price, even giving a discount of around 2% to 20% and with additional promotions. Furthermore, several areas in Kalimantan and Sulawesi also have future prospects, due to the existence of special economic zones (SEZs) and also reclamation for the development of international trade. CTRA IJ and SMRA IJ are the most benefited as they have a diversified land bank in Sulawesi, while BSDE IJ has 515 ha in Kalimantan. Although we consider that there is no significant potential in the immediate future, at least this has the potential to be a positive catalyst for the three developers in the future.
Property players are more confident about launching new residences in 4Q20
As we know, the property sector still has prospects even though it continued to experience a sales slowdown in the 2Q20 period when the pandemic began to enter and spread in Indonesia and disrupt economic activity. However, the low interest rates and the need for new housing will benefit residential sales and secure marketing sales developers in FY21F. The developer is currently focusing on several landed houses with offering price <2 billion/unit and will be launched in 4Q20. CTRA IJ will launch the Rhine and Tiber cluster in the River Park Sentul area at a price of IDR640 million to IDR 1.5 billion. Meanwhile, SMRA IJ continues to develop the Bogor area with an area of 422 hectares with the concept of township and integrated TOD. Then PWON will start the construction of a superblock in the Bekasi area in FY21F. We also expect a gradual recovery in property sector along with lower 7DRR which will be maintained at 4% level ; bringing the housing loans (KPR) and apartment ownership loans (KPA) more attractive.
OVERWEIGHT Recommendation for the Property Sector
We changed the recommendation from NEUTRAL to OVERWEIGHT outlook for Property sector in FY21F. The valuation is based on an average discount at the level of 72% 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: Rp1,000), SMRA (BUY; TP: Rp750) and CTRA (BUY; TP: Rp950). 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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