Recovery on its way

Marketing sales update 2015: slowing momentum

The unfavorable macroeconomic conditions coupled with changes on property luxury tax regulation (PPNBm) have increased the burden on demand for property throughout 2015. This could be seen on the marketing sales achievement of the developers which are mostly below than their expectations; even after they lower down their pre-sales targets. Developers under our coverage mostly lowered its pre-sales target by around 10% last year. Moreover, from residential sector, companies which mostly targeted on the middle income bracket and focuses on landed houses such as SMRA and BSDE, did better compared to the company which mostly works on vertical building that are targeted for middle-upper bracket such as LPKR, DILD, and PWON (exhibit 3). Furthermore, on industrial estates sector, BEST posted better-than-expected marketing sales achievement at 18 ha vs. its target at 15 ha. Meanwhile, SSIA booked 10.2 ha of marketing sales or way below the expectation of 20 ha.

Getting ready to recover

In order to boost property demand, the government has revised some regulations last year; however, property market has not recovered yet. This year, BI has lowered its benchmark rate by 50 bps, at such; we believe that lower interest rate environment will give a cushion to the property sector as what happened in FY13. However, due to the conventional banks needing some time for the adjustment to lower interest rate, we view that property sector may only start to pick up in 2H16 to early 2017, this will be also propelled by the current infrastructure development around Jakarta which is expected to be finish in 2017-2018. We are also hoping for tax amnesty to be finalized, as it could be a benefit for the developers which have higher luxurious products such as DILD, PWON, and LPKR.

Outlook in 2016: hoping a better year

Facing 2016, developers tend to have more conservative tone as they set marketing sales target relatively flat compared to their achievement last year (exhibit 2). Developers are still waiting for the macroeconomic conditions to be more conducive to launch their products. Furthermore, we are in the view that industrial estates should start to pick up this year, as the number of inquiry has been increasing since the beginning of 2016, from our channel check to some industrial estates developers. The government has also applied the deregulation of investment permit that only need three hours for permits and licenses. Meanwhile, residential sector would likely to remain soft, as it needs time to feel the impact from government stimulus packages where we expect it could boost purchasing power as well as property demand. All in all, we believe property sector will perform better compared to last year.

Our property top picks in 2016

We maintain our top picks for developers which have strong fundamental, more projects on landed residential sector, as well as higher proportion of sales using mortgage such as BSDE in which 42% of its total payment by mortgage loans. For the second-tier company, we also like PWON as they have higher recurring income portion (48%). Furthermore, on industrial estates, SSIA should be good for long term investment as they will be the beneficiary from the government’s plans to replace Cilamaya port to Patimban port in Subang. They also have advantages from its toll road access to Subang industrial estates and it is also near to the Patimban port.