Fitch Ratings-Jakarta/Singapore-29 August 2016: Fitch Ratings expects demand for industrial land in Indonesia to recover in the next 12 months – from a 14% slump in sales volume in 2015 – amid increased economic activity and improved consumer sentiment since 2Q16. Nevertheless, short-term risks remain, especially with regards to the success of the tax amnesty programme, and whether the government’s planned infrastructure investments would continue.
Industrial land sales improved in 2Q16 after a weak start to the year, due to robust investment inflow and increased confidence in the economy. The consolidated industrial land sales volume of PT Kawasan Industri Jababeka Tbk (B+/A(idn)/Stable), PT Modernland Realty Tbk (B/Negative), PT Bekasi Fajar Industrial Estate Tbk (unrated), and PT Surya Semesta Internusa Tbk (unrated) had risen 35% yoy in 2Q16 with land sales totalling 24 hectares (ha). The consolidated presales value of the four companies had also improved in the period, with presales having risen 46% yoy to IDR595bn (approximately USD44m). Growth in value exceeded that of volume as average selling prices (ASP) rose 8% yoy to IDR2.5m/square metres (sq m) in 2Q16.
Fitch believes the recent improvement was due to a combination of robust investment inflow and improving confidence towards the economy. Total 1H16 foreign and domestic investment realisation rose by 15% yoy to IDR298trn, according to the Indonesia Investment Coordinating Board (BKPM), and accounted for 50.1% of the 2016 target (1H15: 47.6% of 2015 target). Economic activities also improved, as indicated by overall traffic volume growth in Indonesia’s major toll roads having increased 5% yoy in 1H16, after falling to 2%-3% yoy in 2013-2015.
Accelerated infrastructure expansion by the Ministry of Housing and Public Works in 1H16 also helped improve economic sentiment; the Ministry had met 27% of its annual target during the period, compared with only 16% of its target during the same period in 2015.
Fitch believes steady progress on the government’s infrastructure spending and the successful implementation of the tax amnesty programme may boost investor sentiments and, in turn, benefit industrial-land sales.