DARK TIMES AIN’T OVER YET
Many analysts are still confident with the performance of property companies because they believe that tax amnesty program will instantly revived property boom again in 2017, but we beg to differ from the mainstream, we still have a short-medium term bearish-flattish view on the property sector.
We have a strong basis for our views after we take a look at the facts that there is still a lot, ample property supply not only in Serpong but also at other regions at Indonesia. We also maintained a wait and see view about Indonesia political condition, moderate economic growth, low rent yield, and property prices are still quite expensive. Globally, we are still unsure what Donald Trump will do as a President, would his policies send USD stronger vs emerging markets currencies ? if yes, there is a new obstacle for Indonesia property market since Bank Indonesia would be forced to raise interest rates to avoid foreign massive outflow.
For sure, current valuation of property developer companies are quite attractive compared to historical average, with a numbers of companies traded at 50% or even 80% discounts to NAV (Net Asset Value)!, When the property boom happened a 3-5 years ago, prominent property developer companies usually traded at a 20-30% discount to NAV. Of course at current valuation stage, this is an interesting trading opportunity, at least to get a short term rebound.
But for long-term investment, we will consider to accumulate property stocks when further correction occured (1 agent we interviewed are also a stocks investor and he is very sure that property stocks could down a little bit again). In the long term, investing in property shares should bear a sweet fruit since we believe, property prices will go up and boom again in the coming years driven by reduced supply, increased purchasing power, and people are no longer afraid to buy a property assets after they joined tax amnesty.
Maybe the property agents, property investors and speculators will learn the lesson that cycle does exist. Learning it the hard way, but the lesson will make us a better investor in the future. Kondratieff cycle is well and alive, no incentive will work better than time to work out the excess supply from the speculative era. Tax amnesty will help but no panacea and big discount from developers exaggerates the down cycle. This year, We think property market would likely remain weak or flat at best scenario, but we keep our bullish forecast in a long term basis.