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)