The underlying demand for housing continues to grow, maintaining our confident that Indonesia's property sector holds strong potential, even after the recent surge in stock prices. Additionally, government policies promoting homeownership and infrastructure development provide a solid foundation for long-term growth.
Indonesian banks are increasingly engaging in fierce competition to capture a larger share of the mortgage market, even as their cost of funds rises. While the "Bank TD Rate" and "Benchmark Rate" have experienced fluctuations and overall increases, mortgage rates for housing have consistently declined.
Mortgage Rate, Benchmark Rate and Bank TD Rate
This trend suggests that banks are prioritizing the growth of their mortgage portfolios by offering attractive rates to consumers. In a competitive landscape, lowering mortgage rates is a strategy aimed at attracting homebuyers and maintaining a strong presence in the housing finance sector. Therefore, benefiting property companies from bank's mortgage competition.
We are also confident that there is a strong chance for mortgage rates to remain stable or even decline further. We are currently in the midst of a rate-cutting cycle from central banks, and the spread between the cost of funds and mortgage rates is expected to widen. Therefore, the probability of mortgage rates increasing is low.
We may be witnessing a new normal for mortgage rates, as Indonesian banks could be absorbing some of the increased costs by improving operational efficiencies. Our analyst, Niko, noted that rate adjustments typically occur within 18 months lag after changes in the benchmark rate. If the benchmark rate remains unchanged for longer than that, the likelihood of mortgage rates adjusting decreases over time.
We also observed that demand from homebuyers steadily improves while the supply for the landed house develops in slower pace. Not to mention, 79% of this demand came fron end-users.
All things considered, we believe property sector stock prices should at least reach 2013 level. We suggest an overweight stance on the sector considering its supportive top-down approach, making most of the stocks on the sector worth going long.
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