TO CONTROL GROWTH OF THE PROPERTY SECTOR

One of the economic sectors in this country which were highlighted today was the property sector. As know, lately rumors spread aout the Indonesia’s property sector getting close to bubble due to uncontrolled soaring prices. This was happening not just in Jakarta but also in other cities. So it was reasonable to control growth of the property sector to keep it from exploding someday.

               

For reference, look at China: the Government of China and the banking authorities stopped credit valve for the property sector due to its uncontrolled growth, which was being triggered by overbought condition. Now the property marketin China was getting better, far enough from the brink of bubble.

               

In Indonesia, the property industry as basic necessity just like food or fashion, was the target of big investors. In line with the growing population and people’s purchasing power, demand for houses and other property lines were increasing in parallel.

               

Today some people tried to buy homes in which to live, but ironically some speculators buy property as an instrument of investment. Moreover in a condition where economy was ull of uncertainty today, and the need to fulfill the crave for investing was beyond control, propery served as harbor for some investors to let their money grow.

               

All in all, it made demand for property to soar up tremendously. In the end, by the law of economy, demand which was not followed by supply in the property sector would make price to run wild. It seemed impossible to obtain a house at the price below Rp200 million today, even in the city outskirts.

               

Under the circumstances the Government aimed target at the fast growing property sector to jack up state’s income from the tax sector. the directorate General of Tax, Ministry of Finance would this year focus in tax auditing in the property sector. the institution saw the sector as a booming sector but their taxpaying performance was low.

               

Word was out that many property developers did not report their tax obligations as they should; they only reported Income Tax [Pph] and Added Value Tax [PPN] lower than they were supposed to be. Seling price for example was only reported as Tax Object Sales Value [NJOP]. And yet normally the NOJP price was normally only 40% of the actual price. Such was incorrect because tax should be beased on actuall selling price. By auditing tax of the property sector, tax income would increase significantly. This was because demand for property increased, and tax income would increase significantly. As demand increased, so was the price.

               

The only thing was, according to quarterly report of the World Bank, in 2013 ther was property income increase which came to more than 40% of the previous year. Growth of mortgage and apartments were obove 80%. The World Bank reminded instantly there would be bubble from unreasonable property price.

               

The outburst of property in Japan had triggered lengthy economic crisis. In Japan’s big cities like Tokyo, property prices jumped up three times in 1989 last. In the USA the off-burst of property bubble in the Summer of 2006 also caused global economic recession. Price of houses which dropped sharply had caused household wealth to drop, reduced consumption expenditure which finally affected economic growth. Falling houses price also caused NPL and confiscation of assets.

               

Indonesia once experience such a condition during the monetary crisis of 1997 followed by economic crisis in 1998. At that time there was non performing loan at the national banking sector which was then transferred of BPPN to the amount of Rp70 trillion.

               

Booming of the property sector was in fact visible from the performance of the property sector which was the backbone of investment amidst bearsh stockmarket index. Index of property was still the sectoral index with highest increase percentage of 37.73% since early 2013 till now [year to date].

               

Based on data of the property consultant Cushman and Wakefield in indonesia price of landed houses posted increase in 3 years time by nearly 100%. In quarter I-2013 price of landed houses rose by 25.1% on te average confared to same period last year. Price of landed house through 2013 was predicted to increase up to 28%. In spite of the ever increasing prices, house products was selling well in nearly all market segments. Absorption was dominated by the middle and middle up segments. Supply of homes for the lower middle segment was still at minimum.

               

The houses category of the above segment was price at above Rp2 billion per unit, the upper middle segment Rp1.4 – Rp2 billion per unit and themiddle segment Rp800 million per unit. House for the middle lower segment was price around Rp400 – Rp799 million per unit and the lower segment Rp400 millio per unit.

               

Reffering to BI’s data per end of March 2013, property credit grew by 15.9% from Rp189.84 trillion to become Rp220 trillion. In case of flat types growth was 77.74% from Rp6,02 trilion to Rp10.7 trillion, while shop houses rose by 34.60% from Rp15.72 trillion to become Rp21,16 trillion.

               

Being unsatisfied with limited supply, Indonesia rich people would not hesitate to go for property in neighboring countries like Singapore. Buyers from Indonesia were quite numerous. 30% of foreign buyers in Marina Bay suits were Indonesias. Yet since end of 2011, the Government of Singapore had imposed additional buyers stamp duty [ABSD] for foreign buyers at 10% - 15% of buying price.

               

The number of buyers from Indonesia were even more than those from Malaysia and China. And yet in terms of price, the super luxurious apartments were only 221 units in number in 66 floors and priced extremely high. The Dir. Gen. of Tax promised they would hunt taxes from Indonesia buyers of super luxurious property abroad.

               

The Government should seek for finance resources to be miximized in line with the unstable global economic condition, for example from property taxes. The imposition of progressive taxes in property sales was something commonplace among some countries. Indonesia once applied this system before 1983. The only thing was it should better be imposed on property used for investment, not private use. However to impose progressive taxes, the Law on Taxation must first be modified but it would take time to realize such.

               

The imposition of progressive taxes to prevent bubble in the property sector was most appropriate. So far the consumers’ high zest to buy property was now being used by brokers and speculators. Consumer who were beginning to be irrational to own property were being taken adventage of by speculators. Some consumers were beginning to be irrational by buying property more than they could afford to pay in the vene that many consumers failed to fulfill their obligations, property bubble would burst off to start new economic crisis.

               

In view of the phenomenon at the property sector, the Government and BI had reason to be anxious. Understandable because it was still clear in our minds the global crisis of 2008 which stated with bubble in the sub primer mortgage. This occurrence seemed to warn other countries to watch on unreasonable upjump of property prices.

               

Some central bank leaders and governments of 14 East Asian and Southeast Asian nations were trying to find a wayout; they were seeking for solution formula to be implementated in their respective countries. According to the World Bank, there were two factors which could drive property bubble in Indonesia.

               

Firstly, increased selling price of apartments in Jakarta which grew by 45% [yoy] per December 2012. The same thig was happening in office buildings and industrial sites.

               

Secondly, growth rate of credit for apartments [KPA] which flashed up to 84% over the same period. The bank credit with competitive interest contributed to jacking up property prices.

               

The Association of Indonesia and Settlement Builders [Apersi] mentioned that in some big cities including Jabodetabek, land were dominated by big developers which Housing jacked land price high up many areas of land were possessed by big developers by pocketing Land Utility Plan [TGT], while they had not cleared the land.

               

For information, price of lad constituted 40% of price of house; followed by 15%-20% was for permit applicationexpenses and the rest for construction cost etc. with such hig price of land it was high for developers to sell houses at Rp95 million as stipulated by the Government to obtain Liquidity Facilities for House Financing [FLPP]. Even if there were any land available, the location was far and remote.

               

Only trouble was, so far the Government’s policy on housing had been extremely vague, which made prices to be market-determined. So it was not easy to conclude whether the property sector was today bubble-prone or not. The nearst possible thing to do was to control price tobe a reasonable as possible.

               

The news that BI would soon release a new regulation on mortgage wheter gounded homes of high rise buildings or apartments was their act to minimize the chances of bubble in the property sector. this regulation was felt necessary to restrict financing of credit property by banks which jumped up significantly.

               

Today the minimum down payment requied to obtain mortgage was 30%. Soon this rule would be tightened for purchase of second hous and further. After thotough observation, it was felt necessary to pay attention to growth of property credit. For that matter BI wished that growth of property credit be maintained at healthy leve the new regulation was meant to intensify the previous rule.

               

The new regulation on KPR and KPA would be effective for types of homes above 70 sq M or flats or apartments of type 22-70 and type above 70 sq M. As with minimum DP, BI would propose to increase it to 30% for buying second, third home etc.

               

For example, upon buying first home, consumers only had to pay 30% DP, whist DP for buying second home could come to 40% of purchased homes, then there was 50% DP for third home etc. this rule also applied on KPA of types above 70 sq M. Meanwhile KPA for houses of 22-70 sqM for first apartment with LTV value of 80%, second home LTV 70% etc.

               

This new policy would be September 1,2013 with transition of 3 months before that date. Ths regulation would soon be applicable on buying of shop houses [ruko] and office homes [rukan] and to be applicable for all provinces without and difference.

               

On the other hand, BI would focus on consumers who were subject to this regulation. For example soon husband and wife would be regarded as two individual debitors.their identities would be proven by certain definite indentity cards. If a husband already had KPR and the spouse would be regarded as second KPR. However there would be exceptions for couples who were divorced. It seemed that this regulation would be effective to put brakes on bubble process. Now banks, developers and consumers should be ready to response to this policy. (SS)    

Business News - July 17,2013