B

ank Indonesia (BI) introduced on Wednesday a new mortgage regulation to help curb excessive loan growth and ease property speculation.

In its statement, the central bank said that it had increased the minimum down payment for additional property purchases and set other requirements for the regulation, which is scheduled to take effect on Sept. 30. BI communications department director Peter Jacobs said that with the new rule, BI had officially revoked its mortgage regulation, which was implemented last June.

'€œWe expected that the mortgage growth rate would decelerate when we implemented a similar regulation last year. However, as it turned out the rate remained high,'€ he told reporters.

Based on data from BI, as of July, mortgage rates for houses measuring more than 70 square meters (sqm) grew by 25.5 percent year-on-year and that of apartments measuring 21 sqm rose by 85.6 percent year-on-year. Meanwhile, the mortgage rate for apartments with a size between 22 sqm and 70 sqm reportedly surged 57.2 percent from a year ago.

Peter said that the rates were higher than the aggregate credit growth rate, which revolved around 20 to 25 percent. '€œWe predict that if excessive growth continues, it will lead to the concentration of bank lending to the property sector and trigger boom and bust in the sector,'€ he added.

Under the new regulation, BI reduced the loan-to-value (LTV) ratio for the purchase of a second property '€” for landed properties and apartments measuring more than 70 sqm '€” to 60 percent and lowers it to 50 percent for purchases beyond the second property. The 60 percent and 50 percent LTV ratios means that customers must pay 40 and 50 percent of the property price, respectively, as a down payment. The new LTV ratios will also be applied to sharia financing, according to Peter.

BI will require customers to submit an official letter, declaring their previous mortgages, when applying for the loans. The letter would then be used to help banks determine customers'€™ property ownership status and set the appropriate LTV, Peter said.

'€œOur data shows that the amount of people owning more than one property has been increasing since 2010, when the figure was 4,700. It grew to 6,500 in 2011 and to 8,300 a year later. As of April, outstanding multiple mortgage loans stood at Rp 31.8 trillion [US$2.75 billion],'€ he added.

The new regulation dictates that husbands and wives will be considered as one debtor, unless the two have an official agreement '€” certified by a notary public '€” to separate their possessions. The central bank also forbids customers from making pre-orders for purchases of additional properties, stipulating that the properties must already be fully constructed.

To increase prudence between banks and developers, BI obliges developers to deposit a certain amount of funds as a guarantee that they will follow through with their construction.

Separately, Bank Tabungan Negara (BTN) director Evi Firmansyah said that the new BI rule would have little impact on the bank'€™s business.

'€œAround 97 percent of our customers are first-time home buyers, whose property sizes are below 70 sqm. The regulation in pre-orders will not affect us either, but I think it will affect developers instead,'€ he said.