Sector Note Property │Indonesia │December 16, 2019 IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. Powered by the EFA Platform Property Devt & Invt On a recovery phase ■Going by a classic property cycle, Indonesia experienced a boom which peaked in 2013, a recession and on a recovery phase at the moment.■Catalysts: policy easing including push for foreign ownership, tax cuts and improving consumer confidence.■Share price catalysts: deleveraging through land bank monetization, investment upcycle and undemanding valuations. Top picks: PWON, SMRAWhere are we in the cycle? Using Jakarta property price index (PPI) as a proxy, Indonesian property sector has effectively followed a classic cycle, which started post GFC and easy money (2008/9), peaked in 2013 marked by the PPI outpacing CPI, which alarmed the central bank to slam on the brake, tightening measures via LTV, including restrictions which constrained cash flow of developers. The initial resilience became a slowdown which ultimately turned into a recession. Meanwhile, the industry weathered through Tax Amnesty (2016/7), sharp rise in interest rate (2018) and General Election (2019). It is on a recovery phase with PPI and rental growth now below CPI. By investor mood, they had been despondent and depressed, with a hint of hope emerging. Expect regulatory landscape to be relaxed further When the tightening in the property market started in 2012, it was done gradually, with the consumers subjected to LTV tightening from 90% to 75% by 2013 and limit of mortgage plan to 1 from previously none. BI also restricted payment to developers under the mortgage scheme in 2013 to curb land speculation. Regulatory easing was done gradually as well, with LTV relaxation and off plan mortgages in 2015 and the latest in 2019. Mortgage disbursements to developers were also relaxed with 30% upfront payment allowed for landed. Additionally, there are talks of foreign ownership laws execution to be resolved as well as potential of further tax cuts. Budding signs of demand recovery As of 9M19, marketing sales have generally improved, evidenced by successful landed house launches from BSDE, SMRA and CTRA. More interestingly Real Estate GDP growth has seen a pick up post-election, after experiencing depressed growth. Meanwhile, high rise should remain pressured as rental yields remain lower than TD rate. Potential relaxation on foreign ownership should serve as a catalyst. With the regulatory tailwinds, the short term challenge is that constrained liquidity and low risk appetite of the banking sector impede a potential speedier market recovery.