Mar 14, 2012

Property boom puts developers to the test

Indonesia's real estate developers are likely to face stiffer tests of their working capital management capabilities over the next year as liquidity pressures intensify. That's according to a report that Standard & Poor's Ratings Service published today, titled "Sizing Up The Credit Risks For Developers In Indonesia's Buoyant Property Market."
"We expect land costs to rise this year as sellers jump on the bandwagon of the property boom, growth in prices starts to slow, and evolving regulations remain challenging," said Standard & Poor's credit analyst Wee Khim Loy. "Larger funding needs will mean a greater strain on liquidity, highlighting any shortcomings in working capital management capabilities."
The report also stated that the property market's solid fundamentals include rising affordability levels amid steady economic growth and low mortgage rates.
"The ongoing building boom to meet demand and solid sales should contribute to steadily improving financial performances among residential developers for the next 12-18 months, at least," said Ms. Loy. 
"In our view, a more transparent regulatory framework and a low interest rate environment would continue the positive momentum in the real estate industry over the next 2 years."
Standard & Poor's added that the key to success will be how well the developers grapple their rising costs, manage their working capital needs, and maintain the financial flexibility to grow. 

Disclosure: No position at the stock mentioned above.

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