Procon says rising costs may delay property projects

The Jakarta Post, Jakarta

Rising construction costs resulting from the surge in oil prices will likely cause a delay in a number of large property projects in the country's major cities, particularly Jakarta, a property consultant says.

PT Procon Indah chief executive officer Siswanto Widjaja said Thursday that the delays would affect most types of property developments, including office and condominium projects.

"Except for retail outlets, many property projects may be delayed next year," he said, adding that the delays would affect supply over the next three years.

Siswanto said that producers of construction materials, such as cement and steel, had begun to feel the pinch from rising oil prices.

"This will continue next year and result in even bigger increases in prices," he said.

Pertamina raised the prices of fuels for commercial use by about 6 percent to take account of the rise in crude oil prices. With further increases in crude prices, fuel prices for industry will likely increase even more over the coming months. Unlike, the fuels sold to the public and households, fuels for commercial use are not subsidized.

"This phenomenon replicates what happened in 2005, when a similar rise in fuel prices took place. There was an obvious delay in construction activities, the repercussions of which we are now seeing, including in the office building market," Procon Indah strategic advisory senior manager Utami Prastiana said.

Besides surging construction costs, the parliamentary and presidential elections, which will be held in 2009, would also affect the property sector as most developers would take a wait-and-see approach.

However, Utami said that the surging fuel prices and the elections would not really affect the property market next year as both supply and demand during the year would remain stable.

According to Procon's market review, the office building market during the third quarter of this year was quite encouraging with growth in the occupancy rate and sales reaching their highest level in 10 years.

Compared to last year, she said, there had been a 5.5 percent increase in new supply of office space, while the occupancy rate had risen by 4.1 percent.

"The most stunning achievement is the level of demand for office space, which peaked at 133.4 percent in the third quarter compared to the same period last year,"

Utami added that total demand for office space for this year was projected to reach 270,000 square meters, which would represent a 117 percent increase over last year. (amr)