This year 2014 is Indonesia’s political year. High uncertainty filled the air toward Legislative Election in April 2014 and Presidential Election in July 9 2014 was predicted to disturb the property sector, especially commercial property for the upper-middle class.
Such was the general perception of the Association of All Indonesia Housing and Settlement Developers [Apersi]. According to the Association, the running of election could axe the upper middle class commercial property by around 20% because consumers would think twice before investing in the political year.
On the contrary, the lower middle level of property would not feel any effect of the election. This was because normally the lower middle class would be advantaged by the political year. Many of them were getting job order of campaign attributes from the politicians.
Beside political condition, the property market this year was also influenced by BI rate. Credit for mortgage [KPR] for people’s houses as high as 9% to 13% per year which would make buyers of second and third houses to be reserved, resulting in reduced demand for houses by 5% - 10%.
As with price, there would be no forseeable increase for commercial property of the lower-middle level such as subsidized homes. This was because subsidized houses already had their increase when the Government increased price of subsidized oil in June 22, 2013 last. The same was with commercial property of the upper-middle class: Low demand would force developers to lower selling price by as much as 20%.
Banking regulations related to business property also had the potential to supress development of property sector. This year, slowdown of credit was a fearful ghost to banks. The property credit was predictably one of the credit sectors vulnerable to banking regulations.
Regulations on restriction of Down Payment for Loan to Value [LTV] made local banks to be pessimistic about 2014. An example was Bank Tabungan Negara [BTN]. This mortgage-specialist bank only dared to set target of single-digit growth or less than 10%. KPR BTN grew by 6.2% at the maximum in the first 3 months this year. This BTN target was way below performance in 2013. BTN projected credit growth of 22% - 23%. Through 2013 last.
Only trouble was, upon embarking on 2014, new applications for KPR was reduced due to LTV regulation and seasonal factor. Although slowing down, it would not affect ratio of Non Performing Loan [NPL]. BTN expected they could suppress NPL in the range of 3.24%. In year ebd of 2013, NPL BTN moved in the range of 4%.
Although pessimistic, BTN believed there would be recovery in demand in election year 2014. In accordance with their business plan, BTN pursued credit growth of around 18% till end of year. The strategy spearhead would include promotion of credit for construction and infra-structure.
Pessimism was also voiced by Bank Central Asia [BCA] who only dared to aim at KPR growth of 8% to maximum 12%. The reason was that LTV regulation for first and second house had great effect on credit growth. This was indeed a hard blow to BCA. Understandable because KPR constituted high percentage in consumer’s credit.
In fact slowdown of property credit had been visible since late 2013. By end of December 2013. By end of December 2013, pipelining of KPR BCA had been stagnant or not much changed from attainment in quarter III – 2013. Realization of BCA KPR mortgage credit was Rp52.46 trillion. So the strategy adopted was to make adjustment in the KPR sector. For example, to be selective in processing new credit to prevent NPL increase. By end of 2013, NPL KPR settled at 0.5% - 0.8%.
Bankers’ prediction was in accordance with Bank Indonesia survey. Slowdown in banking credit was reflected in Net Balance [SBT] of survey result on new application for credit in quarter IV 2013. SBT figures went down to 88.5% against 90% of the previous quarter. The greatest downturn was credit for homes and credit for apartment [KPR/KPA].
The trigger of slowdown in property business was implementation of LTV regulation in September 2013. Other factors were increase of benchmark rate. BI’s survey unveiled that credit growth slowed down to 19.1% in quarter I 2014. That BI survey predicted credit growth this year to slowdown [by around 15% - 17%] against last year [21% - 22%], proved BI’s successful policy ran so far.
BI’s strategy to increase benchmark rate several times o as high as 7.5% was urgently needed considering that growth in the real sector had been slowing down since last year; moreover for certain sectors like property where NPL grew higher due to uncontrollable property prices.
Rupiah depreciation against USD also injured some import-based companies as import expenses swelled due to depreciated Rupiah. The same was with exported companies based on natural resources. In the present condition where banks aggressively extend credit, The risk of increasing NPL was bound to happen, so credit pipelining must be slowed down by increasing interest.
It was reasonable to say that credit extention would not disadvantaged the banking industry although the profit made from credit interest would be slightly affected. Somehow there was the brighter side of BI in increasing BI rate and enhancing LTV rules which healthen credit pipelining.
Meanwhile PT Sarana Multigriya Financial [SMF] set target to reap fund of at least Rp 1 trillion from release of Participation-Letter based Effect [EBA-SP]. The fund would be used by SMF to jack up secondary financing for housing. The only thing was SMF must be patient in releasing security asset products until the regulation was finalized by the Financial Service Authority [OJK] which was expected to be effective in the first half of this year.
The EBA-SP fund would jack up company’s financing in extending housing financing, whether in the form of security asset or financing for mortgage agencies. So far, only PT Bank Tabungan Negara Tbk [Persero] received financing through mortgage security asset.
EBA-SP would enrich security products for investors. As footnote, SMF had been issuing KIK-EBA, which was a contract between investment manager and custodian bank who was also holding inclusive units as investors, unlike EBA SP which was issued by SMF themselves.
By end of last year, SMF was noted to extend total credit of Rp 3.5 trillion, i.e. for financing Rp 2.5 trillion and security asset Rp 1 trillion. In view of the prospect this year, SMF was optimistic to be able the surpass previous year’s attainment.
While financers of the property sector tend to be moderate in responding to economic prospect of this year, players of the property industry themselves were expecting that this political year would lead to formation of pro-people policy. One of the thinkable measure was to change the platform of housing subsidy into downpayment-based subsidy platform in mortgage. A platform as such would enlighten consumers’ burden who mostly small people.
In view of the structure of Indonesia’s population who were mostly of young age-bracket consisting of young couples and families, the prospect of property in Indonesia in the future was still bright. Other reason was that shelter was Man’s basic essential need.
As population increased, total land area remained the same. With changing supply-demand ratio, the property marketing concept changed accordingly. Under such circumstances the relevant concept would be landed house changing into vertical building.
Property beside its purpose as accommodation for the consumers could also be a medium of investment. Many benefits could be taken from property investment. For one thing property price definitely tend to increase, although the degree of increase depended on economic condition. The minus point of property was that it was relatively less liquid and called for high amount of fund to invest.
Finally, financial institutions or property industry players were called to be wise in facing the political year so growth of property business could be maintained at least at last year’s level. The effort to step up performance of the property business would sustain national economic growth as a whole since the property industry was one of the catalysts of a economic success of a nation beside the automotive sector. (SS)
Business News - February 14, 2014