B

ank Indonesia (BI) is planning to curb the soaring property and housing prices '€” attributed to pervasive speculations '€” expressing its concern over a possible bubble in the fast-growing credit segment.

The central bank will introduce a new rule that is expected to complement its minimum down payment limit of 30 percent for housing loans introduced in June last year.

The new rule, set to be implemented in September, will target customers wanting to have two or more mortgages.

Those who want an additional mortgage must set aside a 40-percent down payment for the second house and 50 for the third residence and above.

'€œWe are now paying attention to the growth of certain types of housing mortgage; we want to ensure it can be kept at a healthy level,'€ BI Governor Agus Martowardojo said on Thursday.

Currently, there are 35,002 debtors with two or more mortgages, with their outstanding loans amounting to an eye-popping Rp 31.8 trillion (US$3.18 billion), BI data shows.

At least 3,800 debtors have three to nine mortgages, while a small number of debtors even as many as fifteen mortgages. The mortgages finance the purchase of houses for speculative purposes.

Indonesia has seen exceptionally robust growth in housing lending, thanks to the strong purchasing power of the country'€™s middle class, which has brought massive profits to property developers.

As of May, BI data shows that mortgages for houses measuring more than 70 square meters grew by 25.9 percent year-on-year. Meanwhile, mortgage growth for apartments of 21 square meters topped 100.3 percent and mortgage for apartments measuring between 22 and 70 square meters grew by an astounding 111.1 percent.

'€œWe should be vigilant when [loan growth] exceeds the rule of thumb of 25 percent. But what we are seeing now is growth of more than 100 percent,'€ said Agus.

BI Deputy Governor Halim Alamsyah said the country'€™s low-interest rate regime had encouraged speculative play as people apply for mortgages for investment, rather than residential, purposes.

'€œBased on our study, those type 70 [square meters] and above have a tendency of bubble, because the price is no longer rational,'€ he told reporters.

Meanwhile, stakeholders from the banking sector appreciated BI'€™s move, arguing that it was necessary to take action so the country can avert anything that could destabilize the economy.

'€œI think this is a prudent move to prevent an excessive boom in the property sector,'€ Bank Central Asia (BCA) president director Jahja Setiaatmadja told The Jakarta Post in a text message.

The 2008 financial crisis was first triggered by the burst of the housing bubble in the US.

The '€œburst bubble'€ refers to the condition when the price of housing pops after rapid increases in valuation '€” mostly on the basis of speculation rather than on the reflection of real demand. These bursts have a potentially detrimental effect on other economic sectors, particularly on banks.