Developers told to issue bank guarantees

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)