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Jakarta Post

Bank Indonesia rate cut to aid property growth this year

  • Farida Susanty

    The Jakarta Post

Jakarta   /   Sat, February 20, 2016   /  11:11 am

The Indonesian Real Estate Association (REI) has welcomed Bank Indonesia'€™s (BI) recent benchmark rate cut, stating that the cut would help spur growth in the property industry this year.

'€œIt is just what we expect. As the interest rate goes down, not only the property sector, but all business sectors will be revived,'€ REI chairman Eddy Hussy said Friday.

REI believes that the country'€™s interest rate is too high compared to the rates in place in neighboring countries. This situation degrades Indonesia'€™s competitiveness in the face of the planned full implementation of the ASEAN Economic Community (AEC).

Malaysia'€™s benchmark interest rate is 3.25 percent and Thailand'€™s is 1.50 percent. Indonesia'€™s previous rate was 7.25 percent.

On Thursday, BI cut its benchmark rate for a second consecutive month by 25 basis points (bps) to 7 percent, which paved the way for lower borrowing costs for the country'€™s industry.

The association predicted growth in the property sector to reach 10 to 12 percent this year, higher than last year'€™s growth of 7 percent.

'€œFor the outlook, we see indications of economic growth. We see that the middle to lower-class market has been boosted by the government'€™s one-million houses program,'€ he said.

The government has pledged to provide one million new houses each year during President Joko '€œJokowi'€ Widodo'€™s administration to solve the country'€™s housing backlog. The backlog stood at around 13.5 million houses in 2014.

This year, the government has allocated housing loans for low income lenders (KPR) through a government-backed mortgage (FLPP) program totalling Rp 9.3 trillion (US$688.6 million). Last year'€™s allocation for the program was Rp 5.1 trillion.

The Public Works and Public Housing Ministry only managed to build 667,668 houses last year.

The ministry expects to build more houses after the deliberations on People'€™s Home Savings (Tapera) in March.

Through the Tapera program, the government aims to pocket Rp 50 trillion to Rp 60 trillion in first five years.

'€œIt can add up to 100,000 more houses for people,'€ the ministry'€™s director general for housing finance Maurin Sitorus said.

However, Eddy also mentioned that some of the government'€™s policies had inhibited the efforts of the country'€™s property developers to drive the industry forward.

Among these policies included a central bank regulation restricting low-income lenders from getting loans from banks if they failed to meet certain conditions. Under the current ruling, people can apply for loans only if the construction work has reached 30 percent.

Eddy said that the absence of the program would breed in-house loans, which meant that loans would be between developers and consumers, whereas not all developers could afford such schemes.

A BI survey showed that in-house financing had jumped to 16.36 percent in the third quarter last year, compared to 11.33 percent in 2012.

Recent data from the National Banks Association also revealed that 75.77 percent of customers bought property through bank loans.

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