Indonesian Property, Restraining growth, CLSA

Central Bank’s regulation of 30% min down payment for mortgage will
have more negative impact on demand for the lower income segment,
rather than the mid-up. Some listed developers have exposure to the
mid-low segment, but this is less than 15% of sales. Some developers
have already applied higher DP, hence will experience minimal impact.
To sustain demand, developers may extend payment period for DP or the
instalment period. Sector remains compelling; now at 36% disc to NAV.


Higher down payment for mortgage
 Central Bank sets a min down payment (DP) of 30% for mortgage financing vs
current norm of 20% to be effective on 15Jun2012; applicable to private housing
sales. The rationale is that banks must increase their prudence in lending.
 This came as a surprise given recent Central Bank’s pro-lending stance through
lower RWA for mortgage lending, and low NPLs of the industry. Moreover,
mortgage credit of US$19bn is only 8% of total loan and 2.2% of GDP.

Less impact on listed developers
 The new regulation will have more negative impact on demand for the lower income
segment (<Rp600m per unit price), rather than the mid-up.
 Some developers such as CTRA, LPKR, ELTY and ASRI have exposure to the midlow
segment, but this only contributes less than 15% of the total sales.
 While mortgage financing portion of total purchases ranges between 10% to as
high as 72% across developers, the key is some developers like SMRA, BSDE and
ASRI are already applying higher DP than the 20% norm.
 To work around the regulation, developers may extend the payment period for DP,
or the instalment period for instalment payment scheme.

Targeting aggregate sales of +26% YoY
 Aggregate marketing sales this year is set at +26% YoY to Rp28tn with price
appreciation being the growth driver. This is twice as much sales as in FY10!
 Developers who have reported 2M12 sales seem to be meeting the targets.

Remains a compelling story
 Sector is experiencing a pullback post the regulation announcement, nonetheless,
the structural story remains compelling with rising urbanisation, growing middle
class and low mortgage penetration.
 The sector is still trading at an attractive discount to NAV of 36%.
 We like BSDE as a large proxy to landed residential play, SSIA (Non-Rated) as a
proxy to rising FDI, and CTRS (Non-Rated) as a key residential play in Surabaya.

Download file : Property sector note - final