Government urged to rescue ailing property sector

JAKARTA (JP): The government must take concrete action to restore the country's ailing property sector, an analyst has said.

Panangian Simanungkalit, chairman of the Center for Indonesian Property Studies, said Saturday the government should, for example, establish a land bank institution to buy land owned by ailing property developers.

Proceeds from their sales should be used by property developers to pay back any of their mounting bad debts, he said.

"The property sector has been the main culprit in the banking crisis," he said.

"It's similar to what happened in other troubled economies like Thailand."

Panangian said the government should also allow foreigners to own up to 100 percent of Indonesian property as this could be an important solution to the bad debt problems of the sector.

The number of nonperforming loans has increased sharply in the last several years following rapid growth in lending to the sector.

The bad debt total increased from Rp 3.9 trillion in 1995 to Rp 5.25 trillion (US$1.18 billion) in 1996. He estimated the figure for 1997 could go as high as Rp 5.6 trillion.

The government recently announced banking reforms as part of drastic economic deregulation measures sponsored by the International Monetary Fund.

Despite some basic steps to clean up the mess in the banking industry having been agreed on, it is still not clear how it will be done.

One nagging question is how to resolve the alarming number of bank bad loans.

"The government must rescue the property sector," Panangian said.

He said the government must take over banks' bad assets in the form of land by establishing the land bank institution. He said developers land should be bought at "crisis price".

He said large diversified business groups had been spoilt by being allowed to amass large tracts of land, creating an unequal distribution of land.

"Through a land bank, the land acquired could be redistributed to develop more cheap houses."

Where will the money come from? "I don't think money is an issue here," he said.

He said the government would have enough funds as long as it efficiently used its budget.

State funds were often misused, he said, citing the significant leakage from the government budget, which noted economist Sumitro Djojohadikusumo has said has reached 30 percent.

On foreign land ownership Panangian said: "Limitation on majority ownership must be scrapped and the property law must be made transparent. Otherwise foreigners will not come in."

Asked if the entry of foreigners into the property sector could create a negative sentiment among the public, he said; "It's no longer relevant."

He said many Indonesians had parked their money abroad in the form of equity and cash, and the amount was rumored to be US$80 billion.

He also said that Indonesians were well known for their eagerness to buy properties in Beverly Hills, Perth, Melbourne, Hongkong and Singapore.

Diversified groups like the Salim Group, Lippo and Duta Annggada were examples of those with large foreign property investments, he said.

"So our government and politicians must change their way of thinking," Panangian said.

He said top government officials in the property and banking sectors must get together to work out ways to solve industry's the bad debt crisis. "It would be best to issue a presidential decree to give foreigners assurance."

As to whether volatility of the rupiah against the could be a stumbling block for foreigners, he said it should not be a problem as they had more than a hundred years of experience in investing overseas and were equipped with strong intelligence networks.

With the country's property value already dropping more than 40 percent, he expected multinationals like Citibank, Unilever and oil drilling firms to be lured into investing in the domestic property sector.

"These companies have done business in the country for a long time. They believe in the long-term prospects of Indonesia."

Long-term investors like Japanese Real Estate Investment Trust should also have an appetite, he said.

Panangian is convinced that the best way of solving the rupiah crisis is by drawing U.S. dollars by way of direct investment in property.

"It's a long-term investment as opposed to a short-term equity investment," he said.

He said efforts to boost exports would take much longer, and forcing exporters to surrender their dollars might not be easy. (08)