Indonesia property -- a free, though not liquid, lunch?

HONG KONG, July 25 (Reuters) - Where can you get prime land, thousands of homes and some shopping malls virtually for free?

Indonesia, it seems.

While global investors shirk at anything property-related after the U.S. subprime mortgage meltdown, Indonesian developers are possibly Asia’s best kept secret, because brisk home sales contradict share prices that reflect a market crash.

Property stocks in Southeast Asia’s largest economy are so cheap they are offering their property for next to nothing, said CLSA analyst Daniel Oen.

Ciputra Development CTRA.JK, whose cash almost equals its market capitalisation, is gifting investors stakes in three retail-hotel complexes, a central Jakarta commercial development and housing projects, Oen calculates.

Using his model, which takes market capitalisation, deducts cash and a value for recurring income, Summarecon Agung SMRA.JK is offering its land bank to stock investors at a 70 percent discount to its own selling price.

“No question, it’s a bargain right now,” Oen said.

Owning stocks rather than land involves taking on the risk of a company going bust. But although the Indonesia property stock index .JKPROP has fallen 33 percent this year because of rising inflation and interest rates, developers are prospering.

Ciputra Development more than doubled its home presales in the first half of this year and rival PT Bakrieland Development ELTY.JK notched up 76 percent growth.

Housing booms are turning to slowdowns as rising interest rates bite in India, Singapore and Hong Kong. China is targetting property to cool its economy, and inflation and high financing costs have cast a pall over Asia’s property trusts.

But in Indonesia, no stranger to high inflation and interest rates, Jakarta home prices are up around 15 percent from a year ago, allowing developers to nudge margins up despite a similar rise in land and construction costs.

And while interest rates are rising, the introduction of fixed rate mortgages is proving popular with homebuyers. At 10.25 percent, they seem expensive internationally but are a bargain compared with the 18 percent going rate a couple of years ago.


Ciptra Development and Bakrieland are trading at 66 percent and 54 percent discounts to forecast 2008 net asset value, compared to a 26 percent average discount in the rest of Asia, where housing markets are struggling.

But fund managers are yet to take the plunge, because low trade volumes for Indonesian property stocks means it is difficult for them to invest nimbly.

Only around $1 million worth of Ciptra Development shares change hands each day, and the most liquid stock is Bakrieland, with around $10 million of daily volume.

“It’s not a very meaningful part of our universe,” said Frankie Lee, property fund manager at Henderson Global Investments in Singapore.

Housing sales growth will probably weaken in coming months because of rising interest rates, according to Credit Suisse analyst Teddy Oetomo, but a complete market freeze is unlikely because the resource-rich economy is in decent shape.

And most developers have learnt from a torrid time with inflation in 2005, and have signed “price-volume” contracts with cement and steel suppliers, capping cost rises to 2-3 percent this year, compared to the 7-8 percent hikes in 2005.

“The market has punished stocks, expecting a worst case scenario, as in 2005,” Oetomo said. “But things aren’t as bad as 2005. Some of the money made from the commodities boom is being invested in Jakarta and Surabaya property.”