Lending ban seen to hurt small, medium developers<\/p>\n
JAKARTA (JP): Businesspeople and analysts said yesterday that
\nthe government's move to ban new loans for land acquisition and
\ndevelopment would severely hurt small and medium property
\ndevelopers.<\/p>\n
Panangian Simanungkalit, chairman of the Center for the Study
\nof Indonesian Property, warned that the ban would result in the
\ncollapse of many small and medium developers.<\/p>\n
\"The number of developers going bankrupt could possibly be
\nhigher than predicted this year,\" he told The Jakarta Post
\nyesterday.<\/p>\n
He estimated last year that about 25 percent, or 625 of
\nIndonesia's 2,500 developers, would go bankrupt this year because
\nof mounting debts, legal problems and a weakening market.<\/p>\n
\"The big ones will survive, but they will at least be stopped
\nfrom accumulating more land in Greater Jakarta,\" he said.<\/p>\n
Big developers control about 96,000 hectares or 79 percent of
\nGreater Jakarta's 121,631 hectares of residential land.<\/p>\n
He said developers had acquired more land than they were able
\nto develop. \"Their capacity to build is only 60,000 units a year.
\nFor that they need only 15,000 hectares of land,\" he said.<\/p>\n
Preventing developers from accumulating land would force down
\nthe cost of owning land because developers usually bought land on
\ncredit, the interest of which increases land prices, he said.<\/p>\n
He said that if the cost of land could be reduced then the
\nprice of housing would in turn decrease, which was good for
\ncustomers.<\/p>\n
The ban on loans is part of the new package of deregulation
\nmeasures announced by the government Monday. Other measures
\ninclude a cut in import tariffs on 1,600 items and a reduction in
\nthe number of local taxes collected by provincial
\nadministrations.<\/p>\n
Yopie S Batubara, a Medan-based developer who is also chairman
\nof North Sumatra's Chamber of Commerce and Industry, said the
\npolicy would paralyze the property sector as many developers
\nwould cease operations.<\/p>\n
Expenses incurred by developers for land acquisition,
\nprocessing of land documents and land clearing make up 40 percent
\nof the total cost of developing a housing complex, he said.<\/p>\n
Under the current practice, Yopie said, banks finance 60
\npercent of all phases of housing development, including land
\nacquisition.<\/p>\n
Problem loans<\/p>\n
He said the new policy should apply only to developers with
\nproblem loans and not to developers who performed well.<\/p>\n
\"If the policy is applied to all developers, none will dare to
\nbuild housing, and this, in turn, will increase problem loans,\"
\nsaid Yopie.<\/p>\n
The president of PT Pemeringkat Efek Indonesia (Pefindo),
\nFarid Harjanto, said the ban would force property companies to
\nseek other financial sources such as bonds to finance their
\nprojects.<\/p>\n
\"The property companies will switch their financing sources
\nfrom bank loans to other instruments,\" he said.<\/p>\n
Publicly listed Bank Tamara's vice president Hendrik
\nSuhardiman shared Farid's view, saying the ban would force
\nproperty companies to switch to alternative sources such as
\nbonds.<\/p>\n
\"Bonds will become an alternative financial source for
\nproperty companies in the future,\" he told the Post yesterday.<\/p>\n
A senior economist from the Centre for Strategic and
\nInternational Studies (CSIS), Pande R. Silalahi, said the ban was
\nthe last resort for the government to prevent the collapse of the
\nbanking industry such as in Thailand recently.<\/p>\n
The government had no choice but to impose the ban because the
\ncentral bank's measures to persuade banks to reduce lending to
\nthe property sector were ineffective, he said.<\/p>\n
He warned that the regulation should be temporary and should
\nbe lifted as soon as the property market picked up.<\/p>\n
Economist Sjahrir, however, saw the cap on new loans to land
\nacquisition and development as already too late because almost
\nall land in strategic locations for property development had been
\ncontrolled by certain business groups.<\/p>\n
\"Land ownership has now been so concentrated in the hands of a
\nfew large groups that the restrictive ruling is no longer
\neffective,\" Sjahrir noted.<\/p>\n
He wondered why the credit ruling was included in the latest
\nreform package because the credit cap was not related to the
\nderegulation measures.<\/p>\n
Bank Indonesia (the central bank) Governor Soedradjad
\nDjiwandono said that loan growth in the property sector reached
\n50 percent over the past three years.<\/p>\n
He said that total credit allocated to the property sector
\nreached Rp 65 trillion (US$27.08 billion) as of July, or 18
\npercent of the total bank credits outstanding.<\/p>\n
\"Excessive credit allocation for the property sector
\ncauses problem loans,\" Soedradjad said. (jsk\/bnt\/pwn\/aly)<\/p>",
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