Developers told to issue bank guarantees

JAKARTA (JP): President Soeharto requested property developers yesterday to give home buyers bank guarantees to ensure payments in case they fail to build houses.

"The President said developers should open accounts in banks from which clients could withdraw their money if houses are not built as planned," State Minister of Public Housing Akbar Tanjung said yesterday after meeting Soeharto.

Tanjung said developers should ask their banks to issue guarantees to buyers, who could cash them in if they felt cheated.

"Don't buy from a developer who does not provide a bank guarantee," Soeharto was quoted by the minister as saying.

Tanjung said he and other ministers would see if the government needed to issue a special ruling for the guarantees.

Developers have frequently failed to build houses for buyers who had made down payments.

In October, a delegation representing 700 disgruntled home buyers from the East Java capital of Surabaya went to the National Commission on Human Rights because they had been cheated by a cooperative run by retired military officers.

They paid Rp 2.5 billion (US$1.1 million) in installments over two years but the cooperative had not built their houses and its manager had disappeared.

In another case, about 2,500 people employed by the Ministry of Transmigration and the National Family Planning Board were cheated by a Jakarta Workers Cooperative which promised to build houses in cooperation with a developer.

They paid billions of rupiah in initial payments for houses which have not been built.

Tanjung said he had reported this fraud to the President.

To prevent further fraud, Tanjung said, the Ministry for Public Housing had sent letters to all government offices asking them to consult the ministry before choosing partners to develop housing projects.

Tanjung said some irresponsible developers had blatantly cheated their clients and some lacked capital because they could not get loans.

Many buyers failed to check the credibility of developers because they were desperate for houses, he said.

The government could not check the credibility or financial soundness of a developer because this was not among the licensing conditions for housing projects.

"Normally, a developer gets 70 percent of its finance from bank loans and 30 percent from its equity," he said.

Tanjung also told the President that 110,000 cheap houses would be built in the 1997/1998 fiscal year.

The government expects that 500,000 cheap houses will be built in the Sixth Five-Year Development Plan which will end in 1999.

Tanjung was optimistic that this target would be achieved because 413,000 cheap houses had already been built.

"We will probably have built 600,000 low-cost houses by the end of the current Five-Year Development Plan," he said. (jsk)