Developers' ratings hurt by lull in I'nesian property sales
A MARKED slowdown in sales in Indonesia's property development sector has removed most of the rating headroom developers had built up over the past three years, Standard & Poor's Ratings Services said in a Credit FAQ published late on Friday.
The report, titled “Will Indonesia’s Stalled Property Sales Spur Downgrades For Developers?” concludes a sector review of rated Indonesian developers as a result of poor third-quarter sales and an increasingly tough market. The report notes that Indonesia’s real estate development sector had held up relatively well compared with other domestic sectors since the beginning of the year. But property sales came close to a halt in the quarter ended September 30, 2015. Most listed developers have disclosed disappointing revenue and sales figures over the past few weeks.
Standard & Poor’s expects property sales for Indonesian developers to be flat on average in 2016, compared with our earlier assumption of 25-per-cent growth.
The report notes that there are few catalysts that could spur improvement in demand next year. More clarity is needed on the regulatory front, especially on the mandatory supply of the tax identification numbers of prospective buyers by real estate developers to the government. A gradual improvement in domestic growth prospects and improved consumer sentiment also appear elusive.
“Developers may be willing to postpone project launches or land sales if they believe demand or pricing is not favourable,” said Standard & Poor’s credit analyst Kah Ling Chan. “Our revised forecasts have so far been mostly rating-neutral for rated developers, with the exception of PT Alam Sutera Realty Tbk, which Standard & Poor’s downgraded to ‘B’ from ‘B+’ on November 3, 2015. We affirmed all the ratings on the other four real estate developers we rate with a stable outlook. While reduced property sales in 2015 and 2016 will translate into weaker credit metrics in 2016 and 2017, that effect will be gradual,” she added.
