After property Consultant Kiight Frank warned of the alarming condition
in the property sector that prices in this sector no longer reflected the
actual price meaning a signal of bubble now was the World Bank’s turn to give
the same warning.
In their report entitled Indonesia Economic Quarterly released on March
18, 2013 last, the World Banks stated that Indonesia’s property held the risk
of bubble. The indicator was high increase of price and property credit through
2012 especially in the sectors of apartments, retail, office buildings and
industrial estates in Jakarta. This institution rated that the price of
Property in Indonesia, especially in big cities like Jakarta, Bandung, Surabaya
and Denpasar had gone way beyond reason.
The World Bank noted that selling price of apartments in Jakarta till
end of 2012 had risen by 43% against end of 2011 [y o y] at the same time
growth of credit for apartment ownership [KPA] soared up by 84% over the same
period.
The same was with increased selling price of office building which came
to 43% over the same period. The rental price of the industrial sector also
increased by 22% over the same period. One thing was sure the price increase in
the property was closely related to property credit which soared to 37% in
Semester I-2012. Mortgage [KPR] over the same period also soared up by 47%
against the same period the previous year.
But still according to the report the World Bank admitted that BI’s step
to restrict Loan to Value since July 2012 was potential enough to slowdown
mortgage credit. So far, pipelining only constituted 14% of bank’s total asset.
Although the World Bank gave their warning of bubble risk, data of BI
had it that since the LTV rule was in effect, growth of apartment credit was in
constant downturn. In spite of slight increase in the last 2 months of 2012, as
a whole the probability of bubble in this sector was not significant enough.
The Central Bank also noted that most property buyers were real buyers,
not speculators with investment motives. Homes were needed by consumers who
were mostly first buyers. Today banks were more cautions about financing the
property sector not being careless because the threat of non-performing loan
loomed large with all the consequences.
Bankers tend to extend credit facilities for property, for example
mortgage [KPR] only for buying of first house. For second house, banks would be
more selective in extending credit.
In tune with BI’s view the Indonesia Property Watch [IPW] also rated
that the World Bank’s statement about bubble threat in Indonesia’s property
market was exaggerated. According to IPW, the property market did increase
significantly in the past one year, but what actually happened was not bubble
but a condition of overvalued.
A condition of overvalued happened when there was difference of price of
15% - 20% between the primary market and secondary market. What was happening
now was that the market drifting toward new equilibrium in 2013.
However there was nothing wrong is the Government and banking regulator
make deeper insight to check if the bubble potential actually loomed in the
next phase. The problem was that many experts rated the property price at
present was not reasonable. Prices soared high above people’s income. A
condition a such was dangerous to national economy. Remember the economic and
financial crisis in the USA in 2008 was triggered by bursting property bubble.
In America the phenomenon was known as sub-prime mortgage. Unless
immediately tacked, it was not impossible that the same kind of crisis would
smash Indonesia the way it happened in the USA. How could such trigger economic
crisis in Indonesia? The cause was if developers turned greedy and in many ways
increase property prices beyond reason, just to reap as much profit as
possible.
The main objective was to lure many capital possessors to invest their
money in property projects by promising profit of 50% in 6-12 moths. So the
price increase was nothing but developer’s game. With the power of money they
fabricate “puppet” investors who rush for property to draw the attention of
real investors, i.e. capital owners who wished to invest their money.
At a glance the process seemed to have no potential impact on the
monetary condition in Indonesia; but to look at it more closely, the investors
bought something at a price way above reasonable price so big profit poured in
into the pocket of fraudulent developers. If the profit were only circulated
domestically in Indonesia, the effect was not too significant on Indonesia’s
monetary condition, but still such was no healthy business.
But if the profit was transferred to their private account abroad like
Hong Kong or Swiss, there would be severe capital flight which was extremely
dangerous to monetary stability at home, this was one point to be watched by
the Government and related regulators.
One thing to be highlighted was how to avoid the bubble threat so it
would not burst, which would endanger national economy. The role of bank
regulators was needed to control increasing demand.
The banking circles which managed credit property must also be more
selective in channeling out credit. Not just to pursue credit volume but
careless in pipelining them. In the early phase credit might seem to be safe,
but in the next two or three years NPL would burst out.
Developers should also be more ethical and correct in offering property
prices. Pricing should not be flavored with misleading gimmicks that says
“Price will soon increase by so many percent. They should give fair,
transparent and objective explanation to prospect buyers.
Lastly, consumers must be more cautious before selling property.
Property buying should better be adjusted to their paying capacity. Buying’s
should not be meant as speculation unless the consumer was basically a broker.
If the above steps could be well exercised, surely the threat of bubble could
be mitigated. (SS)
Business News - March 27,2013
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