Tuesday, 4 September 2012


Over quarter I this year, performance of property business in Indonesia had been on the spotlight in the Asia Pacific region. Sales of property were soaring high just when property in other economy.

Research outcome of Knight Frank property consultant last June unveiled that performance of property in Indonesia in quarter l/2012 was the highest in the Asia Pacific region; the growth even excelled over Malaysia, India, China, New Zealand, South Korea or even Australia.

Research of Knight Frank also disclosed that Indonesia had been able to grow remarkably in times when global economic crisis tormented the property sector in the Asia Pacific region. A property consultant from England believed that property sales in Indonesia would soar high at double digit this year in spite of threatening global crisis.

Property in Indonesia would be having price increase on account of increased income, strong and stable economy and high urbanization. However, the increased property price in Indonesia brought anxiety to Bank Indonesia especially when the price increase happened in time when banks extended their credit to the property sector.

BI noted that in January 2012 last, mortgage (KPR) being liquidated by banks reached Rp 188.288 trillion or an increase of 33.1% compared to January 2011 which posted only Rp 141.408 trillion. All in all, high mortgage growth jacked up property prices which did not represent its real value (bubble) so it could increase risk borne by banks.

Based on that argument, BI released a policy related to Loan to Value (LTV) for mortgage and credit for apartment ownership (KPA). BI increased the minimum down payment from 20% to become 30%. Credit that could be extended was maximum 70% for Mortgage.

Beside the risk of bubble in property, BI was also trying to minimize the risk for non performing loan in mortgage (KPR) and apartment (KPA). It seemed reasonable that the property sector was the focus of attention in many countries, not excepting Indonesia. Moreover, in many countries including America the property sector was the root of problem such as the case of Subprime Mortgage which shocked America in 2008.

To make sure that the property sector would not pose as some sort of a time bomb in the future, many countries were scheming up strategies for the property sector. There were at least notably three countries who were making intervention on property namely Malaysia, Taiwan and Singapore. These three countries were adopting the policy of credit limitation, imposition of extra taxes and protecting the property assets from foreign investors which made sales of houses to decrease.

Singapore was now trying hard to restrict property ownership by foreign citizens, i.e. by way of imposing multiple taxes, more over Potential buyers investing in property business that country were only investing for short term.

The measures take by some Asian countries was to anticipate the possible domino effect of troubled global economy. In case of Indonesia, it seemed that over-demand with prices that tend to be unrealistic was the reason why BI restricted pipelining of credit for mortgage (KPR) and apartment (KPA).

However, BI concluded revision of policy for credit down payment had the objective to minimize banking risk and risk of non performing loan. By this regulation, banks were asked to be cautious about facilitating KPR and KPA.

From BI’s viewpoint, the rule for KPR and KPA credit were only effective to suppress down pouring of property credit for a while until new balance was attained and consumers who wished apply for KPR or KKB could afford to pay down payment. This new regulation could not hold back pipelining of bank credit it for too long.

Simulation by BI concluded that increased of DP from 20% to 30% could make customers to postpone their application for KPR for 7 to 8 months. Until then customers would save their money for paying DP. However, outcome of BI’s simulation businesspeople concluded that business people were never absolutely sure about the simulation itself.

Businesspeople rated that increase of DP for mortgage only had the effect of applicants postponing their application for six months. Some even believed it was around three months. The most affected were the lower-middle group because they were the ones who buy houses by mortgage, especially of the category below Rp 500 million. In this case the uppermiddle were not affected at all because most of them bought units by cash or gradual cash.

To developers who aimed at the upper middle class, the BI policy had hardly any effect this target market did not mind at all if the DP were increased which means that the property sector in Indonesia would move ever onward in spite of the regulation.

The obligation to pay higher DP could be tricked by allowing buyers to pay the DP by installment. Developers were rated as being keen eyed in arranging this payment platform but the trick was considerably effective. Many developers simply did not care about BI’s policy.

In the secondary market, or the market of second hand products such a trick was not applicable. The property secondary market had no other choice but to obey BI rules. However downturn of property sales in the secondary market would be only temporary, before arriving at a new equilibrium.

Although the secondary property market was shaky, broadly speaking the BI policy did not make the property market. The way it had been, creditors of the secondary market had already applied the 30% DP anyway.

Besides, many of the secondary market were not buying property on mortgage (KPR) basis, perhaps only 10% were doing so many of the consumers were paying by hard cash or cash by stages. In short, the DP policy only interrupted the secondary market for a moment.

The only thing was that for 2013, the property sector had the potential to weaken due to the 5 year cycle factor. A saturatedmarket of the property sector would be felt by next year. So a projection as such should be watched out by players of the property sector.  

Business News - July 25, 2012

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