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Indonesian central bank aims to revive country's sluggish property market
AS Indonesia's central bank drives up interest rates to defend a fragile currency, its governor Perry Warjiyo is banking on a revival of the sluggish property sector to maintain growth momentum in South-east Asia's biggest economy.
Five years ago, luxury Indonesian apartment prices skyrocketed amid a commodities boom, during which wealthy buyers paid for their properties with cash upfront. The end of the boom, slower economic growth and rules to curb property speculation put the brakes on that.
Now, the authorities want to encourage buying. From next month, Bank Indonesia (BI) will scrap its 15 per cent minimum mortgage downpayment for first-time homebuyers and relax rules on loan disbursements in a bid to support listless credit expansion.
"We need to support our economic growth", Mr Warjiyo said in a recent interview, and added that property can have a multiplier effect on other sectors.
This comes as Indonesia is caught in the crosshairs of an emerging market sell-off that caused BI to raise interest rates by 100 basis points in six weeks, to defend the rupiah.
Filianingsih Hendarta, a senior BI official, estimates the eased mortgage rules will add 0.04 percentage points to economic growth this year.
That sounds small, but Indonesia's higher interest rates will reduce its growth pace, making a net gain from the rule changes welcome. BI's growth forecast is 5.1-5.2 per cent, compared with 2017's 5.07 per cent.
But given the absence of a hot commodity market and the rising interest rates, seeking to make property an economic pillar might just highlight the authorities' lack of credible policy options in the current environment.
Standard & Poor's expects property sales to be flat this year despite BI's new measures.
Analyst Chan Kah Ling, referring to the parliamentary and presidential polls next April, said: "We don't think there will be a major recovery; everything will probably move at pedestrian pace until the second half of 2019, after the elections at best."
In recent years, Indonesia's biggest online housing broker Rumah123.com, part of Australia's REA Group, has recorded sluggish sales.
Country manager Ignatius Untung of Rumah123.com said: "The number of buyers seems to be stagnant now."
Bankers have said they will not completely remove downpayments and instead will adjust the interest rates on home loans based on a customer's risk profile.
Roosniati Salihin, deputy president director of Bank Panin , said tepid demand is a major problem for the property market: "The market needs to be reinvigorated. The banking sector is only waiting for customers to walk in."
Soelaeman Soemawinata, chairman of the Real Estate Association of Indonesia, said its "most optimistic scenario" is for the number of units sold to increase by 10 per cent in the next year, "but the property industry is hard to predict".
The younger generation prefers to rent than to buy, said Handayani, consumer banking director of Bank Rakyat Indonesia.
"Kids nowadays prefer to rent and to travel whenever they have spare money," she said.
And if banks start requiring no downpayment at all, it would mean higher installments for customers, which won't sit well, given higher interest rates, said Aldi Garibaldi, senior associate director of Colliers International Indonesia, a property services firm. He said he does not think BI's measures will be enough to spur demand.
While BI's easing is welcome, the central bank should take it up a notch by scrapping rules on the maximum number of credit facilities per person and allow banks to dispense more cash upon signing loan documents, said Adrianto Adhi, president director of developer Summarecon Agung.
BI's announcement on mortgages has spurred some young Indonesians to consider home-ownership.
Newly-wed Khaerul Estian, a 28-year-old who works in a bank, has stated looking. He hopes not to have to make any downpayment, given small savings. He intends to buy, even if higher interest rates raise the ultimate cost. "It's a risk, but the most important thing is to own a house," he said. REUTERS