Industry Analysis

Indonesia Property Sector

Mohammad Aly Fikry

Investment Analyst

aly.fikry@integraoptima.co.id

30 t h August 2019
 Property, a sector yet recovered
2017 seems liked a turnover for property industry. Residential Property Price Index (RPPI)
were growing after 3-year straight continuous decline, revenue of 5 largest public property
company grow significant 20%, and BI 7 day repo rate (BI 7drr) hit the lowest within 10 years.

However, from 2018 until now the growth has stopped. Revenue -7% in 2018, RPPI growth
decline to 1,8% on Q2 2019, lower GDP growth, and higher BI 7drr effective q2 2018. Why
the property plummeted again? Is it the purchasing power weakened? Or oversupply
condition?

Figure 1: GDP and Residential Property Price Index Growth Figure 2: Property Sector revenue (largest asset company)
Growth on yoy still declines, growth on qoq stagnant… …Worst growth in 10 years, a difficult year for property
7,0% 16% 45.000 52% 60%

40.000 50%
14%
6,5% 35.000 36% 36%
12% 40%
31%
30.000
30%
10% 20%
6,0% 25.000
12% 20%
8% 20.000 8%
10%
5,5% 15.000 -1%
6%
-7% 0%
10.000
4%
5,0% 5.000 -10%
2%
- -20%
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H
4,5% 0%
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2019

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
APLN ASRI BSDE CTRA
GDP growth yoy (LHS) RPPI yoy (RHS) RPPI qoq (RHS) PWON SMRA Growth

Source: BI, BPS Source: Company

Commodities are not the industry’s driver anymore

In the past, Commodities are key driver to Indonesia economy. So does the effect to the
property sector. Before 2016, property’s revenue growth was correlated with coal price at
57,1% and oil price at 24,9%. However, after 2016 correlation with coal and oil become 38,4%
and -1,1%, indicated that there is a major shift in the property industry.

Figure 3: Coal and Crude Oil WTI price Figure 4: Correlation of coal price with property’s revenue
140 140 60%

120 120 50%

100 40%
100
80 30%
80
60 20%
60
40 10%
40 20 0%

20 0 -10%
Jun-10

Jun-13

Jun-16

Jun-19
Sep-09

Sep-12

Sep-15

Sep-18
Mar-11

Mar-14

Mar-17
Des-08

Des-11

Des-14

Des-17
Agu-19
Agu-09
Apr-10
Des-10
Agu-11
Apr-12

Agu-13
Apr-14

Agu-15
Apr-16

Agu-17
Apr-18
Des-08

Des-12

Des-14

Des-16

Des-18

coal crude oil WTI rev growth coal

Source: investing.com Source: Company, investing.com

1
 Purchasing power is still there
Looking at the mortgage loan in all banks in Indonesia, mortgage loan in 2018 grew 13% with
lower NPL. Commodities price such as oil and coal rebounded from 2016 until 2018.
Mortgage loan interests were cut. These environments encourage people to purchase a
property which showed in the increasing of mortgage loan.
By these, the RPPI declining in 2018 is caused not by the weak purchasing power. Oversupply
from previous boom era is. Furthermore, with lower correlation between commodity price
and property company’s revenue indicates that there is a customer behavior shifting from
buying for investment to fulfill basic needs.

Figure 5: Lending rates per segment and BI rate Figure 6: Indonesian bank’s mortgage growth and NPL
Rates going down, mortgage loan with a lag few months... …encouraging customer to take easier mortgage facilities
13 30% 2,7%
12
2,6%
11 25%
2,5%
10
5 months lag
9 20% 2,4%
6 months lag
8 takes longer
15% 2,3%
7
2,2%
6
10%
5 2,1%
4
5% 2,0%
2012 2013 2014 2015 2016 2017 2018 2019*

BI rate BI 7 drr Working capital NPL house (RHS) house mrtrg. (LHS)

Investment TD 12 mths House mrtg. house mrtg. (june,yoy,LHS)

Source: BI Source: BI, OJK *June 2019

Longer low rates, relaxed regulation, boosting the industry

Since The spike of Fed rate, BI has risen its BI rate on q3 2018. Historically, there were time
lag between 5-6 months for commercial banks to follow BI rate. However, this past 1 year, it
takes longer than before. It has been 15 months from BI rose its rate in May 2018 without
followed by the increasing of mortgage loan.

Figure 7: Loan-to-Value (LTV) Regulation

2018 2016
type size (sqm)
1st mrtg 2nd mrtg 3rd mrtg 1st mrtg 2nd mrtg 3rd mrtg
>70 80% 80% 85% 80% 75%
house 22-70 85% 85% 85% 80%
<22
>70 80% 80% 85% 80% 75%
apartment 22-70 85% 85% 90% 85% 80%
<22 85% 85% 85% 80%
shop-house 85% 85% 85% 80%
Source: BI

Moreover, BI was relaxing its regulation on LTV which does not regulating the LTV for first
mortgage from September 2018 until now. Meaning that banks are able to give a mortgage
loan to customer with 0% down payment. This environment is hoped to boost property
industry’s sales.

2
 2019-2020 will be a mixed situation
The fed indicating not to rise its rate aggressively like last year. With an intense global political
situation lit by trade war and indication of currency war, IMF and World Bank cut its forecast
world economy growth from 3,3% to 3,2% (IMF) and 2,9% to 2,6% (World Bank). Economy
slow down tend to push the interest rate lower, ease people to take mortgage facilities.
However, Property Industry related quite high to the macroeconomy. Therefore, it is difficult
to predict the industry situation in 2019 and 2020.

Figure 8: Relation on GDP growth and growth of Property’s revenue

60% 7,0%

50% 6,5%

40%
6,0%
30%
5,5%
20%
5,0%
10%

0% 4,5%
2010 2011 2012 2013 2014 2015 2016 2017 2018
-10% 4,0%

Revenue Growth (lhs) GDP Growth (rhs)

Source: Company, BPS

Possibility on the rise of Property stocks

Historically, property stocks were traded at higher multiples on lower rates and lower
multiples on higher rates. With a possibility on lower mortgage loan rate in the future 12
months, there are rooms to grow and possibility for the stocks will be traded at higher
multiple in the next 12 months. This year the sector has outperform JCI for 10%, after a bad
result in 2018.

Figure 9: Property TTM P /E (x) and BI rate Figure 10: Property index relative to JCI, 2018 and YTD
15%
25 16%

14% 10%
20

12% 5%
15
10%
10 0%
8% Jan Feb Mar Apr Mei Jun Jul Agu Sep Okt Nov Des
5 -5%
6%

0 4% -10%
Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

-15%
BI rate BI 7drr mean P/E (TTM)

st dev +1 st dev -1 Avg P/E Rel. to JCI (2018) Rel. to JCI (2019)

Source: BI, BPS Source: Company