Government urged to rescue ailing property sector

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.
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