Analyst warns possible property crash in Indonesia
Analyst warns possible property crash in Indonesia
JAKARTA (JP): A serious property crash may hit Indonesia in
the year 2003 if the government fails to take effective
preventive measures, a property analyst warned here over the
weekend.
The chairman of the Center for Indonesia Property Studies
(CIPS), Panangian Simanungkalit, said that without an appropriate
policy, the property sector crash might occur much earlier than
2003.
"The property market has already shown indications which could
lead to a crash, such as the fall in prices due to a market
slump," he told The Jakarta Post.
But he said the main indication was the growing trend in
nonperforming loans in the sector.
These increased from Rp 2.7 trillion in 1994 to Rp 3.9
trillion in 1995 and to Rp 5.25 trillion (US$1.18 billion) in
1996.
"We estimate that the problem loans will reach Rp 5.60
trillion this year," he said.
Panangian said that banks' credits to the property sector had
grown more quickly than the growth of overall lending in the last
three years.
Property credits grew 52.9 percent in 1994, 29.1 percent in
1995 and 37.4 percent in 1996, much higher that the growth of
total bank credit of 25.7 percent in 1994, 24.2 percent in 1995
and 23.7 percent in 1996.
Last year, banks' property credits accounted for 18.8 percent
of the total Rp 313.3 trillion. This year it is projected to
reach 19.4 percent.
He said the rise in credit to the property sector was not
because developers built more properties but because they
borrowed in order to pay back their loans.
He said the stagnation of property prices in a number of
Jakarta's suburbs and a price cut in other locations was another
pointer.
"This indicates a weakening demand and an oversupply in the
property market," he said, adding that house prices usually
increased by between 15 percent and 25 percent every year, while
land prices rose by between 20 percent and 40 percent," he said.
Panangian was commenting on a statement issued by property
developers last week that Indonesia would not experience a
property crash as long as its annual economic growth was
maintained at seven percent and there were no overinvestments.
But Panangian said continued high economic growth could act as
a temptation for developers to raise their property investments
that could in turn cause an oversupply and further weaken demand.
Declining interest rates could also encourage investors to
borrow more money for property projects, he said.
Panangian estimated that based on the current economic
indicators such interest rates downward trend, the property
sector would boom between 1999 and 2001.
"But after that it will be sluggish. This unfavorable
situation will peak in the year 2003." he said of the possible
time of the property crash.
He said that to avoid the problem, Bank Indonesia, the central
bank, should not only pursue a moral suasion policy in its effort
to limit the credits to the property sector.
It should also require all banks to carefully audit all
property projects and make sure that no banks violated the legal
lending limit regulation.
"Banks should learn from the defunct Bank Summa, which went
bankrupt due to its overinvestments in the property sector," he
said. (bnt)