Indonesia's property sector to suffer from consumption shock over the next 6-12 months

This will create pressure on developers' credit metrics, according to Moody's.

Moody's Investors Service says in a new report that the pandemic-led consumption shock will drive economic contraction and hurt demand across all segments of Indonesia's property sector over the next 6–12 months, creating pressure on rated developers' credit metrics.

"We expect weak retail sales will hurt occupancy and retail property rents, while oversupply continues to constrain earnings in the office segment and industrial land sales fall as companies reduce capital spending," says Jacintha Poh, a Moody's Vice President and Senior Credit Officer.

"The residential segment should perform relatively better, given developers' willingness to cut prices and the potential easing of rules for foreign buyers. Demand will be the strongest for housing projects priced at IDR1 billion or lower," adds Poh.

In this environment, marketing sales will broadly decline in 2020, with the aggregated marketing sales of Moody's six rated developers falling 25% from 2019 figures. This slowdown in marketing sales, along with the revised accounting standard for revenue recognition, now based on handover instead of percentage of completion, will drive a decline in earnings, causing rated developers' leverage and interest coverage to weaken in 2020–21 from 2019 levels.

For most developers, liquidity will weaken over the next 12 months because of declines in operating cash flow and upcoming debt maturities. Alam Sutera Realty Tbk (P.T.) (Caa1 negative) and Agung Podomoro Land Tbk (P.T.) (B3 negative) both face a deterioration in operating cash-flow and are reliant on external funds to meet debt maturities in 2021, heightening the risk of default. And Modernland Realty Tbk (P.T.)'s (Ca negative) cash flow has fallen to the extent that it is unable to meet interest payments on its USD bond. It has initiated the restructuring of its USD notes.