Investors grow risk-averse, picky on Indonesian property stocks

[JAKARTA] Indonesian property shares all rose in October when it became clear that reform-minded Joko Widodo would be president, but as Southeast Asia's biggest economy charts a weaker course this year, stock investors are keen to separate the wheat from the chaff.

Shares of real estate developers with diversified portfolios are faring better than those exposed to risky, high-end residential projects. PT Summarecon Agung Tbk has a varied exposure, especially to the large middle and low-end segments. Well-diversified PT Lippo Karawaci Tbk holds assets ranging from residential property and industrial estates to retail malls and hotel operations, providing a buffer to headwinds in any one segment and offering a more resilient business performance.

Lippo Karawaci has soared 12.7 per cent this year while Summarecon Agung has gained 10.5 per cent. They outpaced the wider market, down 6 per cent this year, and the sub-index for property and construction, 4.7 per cent lower since January.

Investors are growing more risk-averse as weak consumer spending, high interest rates and potentially new luxury sales tax regulations drag on sentiment. Shares in PT Ciputra Property Tbk, currently building a property block which includes a high-end condominium in Jakarta's business district, have taken a beating, sliding 31 per cent so far this year.

"Out of this very weak sector there are definitely gems you can pick on," said Bharat Joshi, a director at PT Aberdeen Asset Management.

The government is revising its luxury sales tax policy. Investors expect Indonesia to broaden its definition of luxury property, subjecting more properties to the luxury sales tax, especially in the wake of a change in some tax rules last month. Buyers now need to pay a tax on a home if its selling price exceeds 5 billion rupiah (US$385,000), excluding VAT and the luxury sales tax. The previous threshold was 10 billion rupiah.

Shares of PT Pakuwon Jati Tbk have lost 27 per cent since their peak in February. Pakuwon Jati's projects consist of mostly condominiums in Jakarta with price tags of at least 3 billion rupiah, according to a research note by Mandiri Sekuritas.

REUTERS