Expert warns of crashing property prices

Expert warns of crashing property prices

JAKARTA (JP): The establishment of a secondary mortgage market is essential to curb speculation in the country's mushrooming property industry, says an executive of the Indonesian business data center.

Christianto Wibisono, the center's director, said over the weekend that there is an indication that a crash in the property industry is imminent due to the unchecked increase in the number of new houses and apartments in the last two years.

The number of unsold housing is rising as new ones continue flooding the market, he said, adding that in 1998, the oversupply is likely to reach more than 25 percent of the number of new houses and apartments available on the market.

He appealed to the government to step in to deal with the worsening situation by encouraging the operation of a secondary mortgage market.

Housing prices in Jakarta and its surrounding areas of Bogor, Tangerang, Bekasi and Depok, for example, recorded an explosive increase of between 22 percent and 52 percent this year alone, he said.

He attributed the increase in the price of housing to speculative trading made both by individual and institutional investors.

Unrealistic

Christianto warned that the prices are unrealistically high and investors and bankers should be cautious as the market has started to suffer in certain areas of the city.

He said prices have decreased due the withdrawal of speculative traders, which mostly base their investment on short- term arrangements.

"If no appropriate measure is taken to curb such speculative trading in the property sector, a banking tragedy, like the one with Bank Summa, could happen," he said, referring to the collapse of Bank Summa two years ago.

Bank Summa, one of major private banks in the country, incurred major financial losses as most of its investments were placed in the property sector, which suffered a major setback in 1990 and 1991 following a massive boom two years earlier.

Bank Indonesia (central bank) Governor J. Soedradjad Djiwandono has recently cautioned private banks to reduce their lending for the property sector, which is estimated to reach over 40 percent of their total outstanding credits.

An executive of a foreign bank said on Saturday that the concentration of lending in the property sector is dangerous to the banking system as a whole, as it would not only reduce activities in the industrial sector but would also cause an unrealistic rise in the demand for housing.

The misleading price increase could make the property sector very volatile to the country's economy since a subsequent price reduction would not only hit developers but also banks, which provided most of the funding to develop or to buy property.

"The banks will be the most hard hit if there is a property crash as most of their cash flows are injected into the market," he said.

"The consequence is clear, a cash-strapped bank will immediately collapse, just like Bank Summa," he said.(hen)