May 22, 2014 / 3:06 AM / in 4 years

Fitch: Indonesian Developers Face Challenge Meeting 2014 Sales Goals

(The following statement was released by the rating agency) JAKARTA/SYDNEY/SINGAPORE, May 21 (Fitch) Fitch Ratings says that its rated developers will have to rely heavily on presales in the second half - which will have to be exceptional - to meet their presales targets in 2014. The developers' generally low presales in the first quarter are not good predictors of performance for the full year because sales during the quarter tend to be slower, and this year the situation is exacerbated by the presidential election that will be completed in July 2014. Fitch expects sales to remain muted until after the election. Nevertheless, developers have options to adjust their product mixes to step up presales. Upscale projects have posted slower sales growth so far this year, in line with Fitch's expectation, but residential products that are aimed at the middle class appear to be more resilient. According to data from Bank Indonesia, mortgages for smaller houses have increased at a faster pace than that for bigger houses since June 2013. As a result, despite stricter new mortgage regulations introduced in the middle of 2013, the central bank reported fairly stable growth in new mortgages during the same period. Fitch observes its rated developers have also been diversifying their product mixes from upscale to mid-range types since last year. For instance, PT Alam Sutera Realty Tbk (ASRI; B+/Stable) has launched homes aimed at the middle class in its Ayodya apartments and landed houses in Pasar Kemis, while PT Lippo Karawaci Tbk (Lippo; BB-/A+(idn)/Stable) has launched the Embarcadero apartment project in Bintaro. These projects are located around Jakarta. Fitch has assigned Stable Outlooks to the developers it rates, despite an expectation of lower presales in 2014, primarily based on their sufficient liquidity buffers, recurring income portfolio, and the developers' ability to scale back land acquisitions to conserve cash. Developers' liquidity buffers stem from a combination of well-laddered debt maturity profile and historically high profit margins. Lippo targets about IDR6.8trn in marketing sales from core businesses for 2014, but has only achieved 13% of the target at end-March 2014. Lippo plans to launch three new projects or new phases of existing projects, mostly in the second half of 2014. ASRI targets about IDR5trn in marketing sales for 2014, and has only achieved 17% of the full-year target at end-March 2014. ASRI plans to launch new phases of existing developments in Alam Sutera and Pasar Kemis, as well as office tower projects in the Jakarta CBD in order to meet its full-year presales goal. Industrial property developer PT Kawasan Industri Jababeka Tbk (B+/Stable) targets about IDR1.2trn of marketing sales in 2014, and has only achieved 16% of this at end-March 2014. PT Modernland Realty Tbk (B/Stable) targets about IDR4.1trn in marketing sales for 2014, and has only achieved 11% of the full-year target at end-March 2014. For more details see Fitch's earlier report "2014 Outlook: Indonesia Residential Property" dated 11 December 2013. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Leni Vu, Sydney, Tel: +61 2 8256 0325, Email: Contact: Erlin Salim Associate Director +62 21 2988 6811 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Nandini Vijayaraghavan Director +65 6796 7216 Vicky Melbourne Senior Director +612 8256 0325 Additional information is available at Applicable Criteria and Related Research: 2014 Outlook: Indonesia Residential Property here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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