Indonesia's property sector most vulnerable to impacts from Covid-19 resurgence: CreditSights

A RESURGENCE of Covid-19 cases in Indonesia would hamper marketing sales growth for property developers there in FY2022, with the sector appearing most vulnerable to the impact of a new wave of infections, research firm CreditSights has said in a report.

This is because tighter movement and operating restrictions are likely to hinder prospective customers from visiting property-development sites and sales offices to view properties and sign off on property purchases, said the firm, a subsidiary of the Fitch Group, in a report last week.

Restrictions could also slow down the pace of construction activities and therefore prolong the recognition of pre-sales as revenues. They could delay cash flow collections as the timelines for the delivery of the properties get extended.

Though new coronavirus cases in Indonesia have slumped from their peak in July this year, the analysts noted that new waves of the infection could emerge in 2022 as new variants of the virus surface.

"We think investors should brace themselves for such further resurgence in Covid cases and the accompanying partial lockdowns," they said.

Still, on the whole, the research firm expects marketing sales of Indonesian property companies to post high single-digit to low-10s range year on year for FY2022, barring adverse impacts brought about by new Covid lockdowns.

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This would be driven by several factors, including a sustained demand for residential homes, at least until Bank Indonesia starts hiking its benchmark rates sometime mid-2022, said the analysts.

A rate hike could lead to a slowdown in residential property sales from the second half of the year, they added.

The analysts do not expect to see the average selling price (ASP) for residential properties - which have remained largely stable - to deviate from the current trend observed over the past 3 years. They expect ASPs to grow by between 1 and 2 per cent annually in the near-term, given the lack of a major catalyst to boost ASP growth significantly.

As for industrial land sales, CreditSights expects industrial land prices to turn volatile in 2022 if further Covid-19 waves hit Indonesia.

But if the country avoids another resurgence of infections, industrial land prices should post a continued recovery in the next year as the Indonesian economy rebounds and business houses embark on capital spending to support their growth appetite in 2022.

This should prove beneficial for the credit quality of industrial land developers such as Jababeka and the land development and sales divisions of Alam, Lippo Karawaci - through its subsidiary Lippo Cikarang - and Agung Podomoro Land, said the analysts.

On the whole, the research firm said the fundamental credit profiles of Indonesian corporates "generally appear strong" and are expected to continue on this positive trajectory into 2022.

Even so, the analysts raised concerns from a valuation perspective and ultimately maintained a cautious and conservative outlook for 2022. "We think the valuation of the Indonesian corporate bonds have topped off, they fairly represent the sound fundamentals of the space and hence there is very little upside left on the table," they said.