Jan 23, 2017 15:30:10

Indonesia Property
Another Day of Sun

Maintain POSITIVE view on Indonesia’s property sector despite disappointing pre-sales in 2016. We’re confident there’s still room for pre-sales to grow in 2017 even though we don’t expect any further interest rate cuts. Factors that support our view are the stable currency and interest rate from rising commodity prices and benign inflation. On aggregate, we are looking at +23% YoY pre-sales growth in FY17, to be mainly driven by low-middle residential segment. We are also positive on industrial estates from tax amnesty inflow and strong inquiries from corporations. Top BUYs: BSDE, CTRA and BEST.

Prefer mass market residential segment
Even with the current interest rate, major banks are still offering competitive single-digit mortgage rates. We believe this is sufficient to support affordability of the mass market residential segment. Full-year impact of LTV relaxation in 2017 will also help to encourage demand for this segment. On the other hand, we are still wary about the middle-high residential and office segments.

Positive outlook for industrial estates
We highlight industrial estates’ notable steady growth in quarterly sales volume in 2016. Several developers mentioned they have been receiving many inquiries from both foreign and domestic corporations which have boosted their confidence on 2017 pre-sales. Domestic corporations have benefitted from their participation in the tax amnesty program, allowing them to invest their assets through industrial land.

Valuation and risks to our view
Sector currently trades at -2SD of the average 1-year forward P/BV and a discount to RNAV. Risks to our positive view on the sector include political risk, uncertainty in global economic outlook, interest rate hike, regulatory risk, currency volatility and inability to increase land banks.