Govt to set up secondary mortgage market
Govt to set up secondary mortgage market
JAKARTA (JP): The government is considering setting up a secondary mortgage market in the near future to provide another source of funds for developers.
"The Ministry of Finance has established a working team to sound out the possibility of using secondary mortgages as a source of funds for housing development," State Minister of Public Housing Akbar Tandjung told the press after a hearing with Commission V of the House of Representatives here yesterday.
He noted that basically the team has agreed on the mortgage establishment. "They are working on operational guidelines to be applied. The market will probably be set up," he said.
The secondary mortgage will function as the market for mortgage debentures which are treated like securities. It is a service primarily intended to take over the long-term housing loans provided by financial institutions to house buyers and trade them on the market.
Such a service, which is already available in other ASEAN countries like Malaysia and Singapore, can improve the lenders' cash flow considerably. They can recoop their money before the loan maturity date and be able to finance other housing developments faster.
Besides Indonesia, Malaysia and Singapore, the Association of Southeast Asian Nations (ASEAN) also includes Brunei, the Philippines, Thailand and Vietnam.
But property analyst Panangian Simanungkalit feared that such a service would hamper the government's efforts to develop low- cost houses to meet the increasing demand from those with incomes of below Rp 900,000 (US$389).
The government has prioritized the development of low-cost housing in the current Five Year Development Plan period ending in 1999.
To realize its target of developing 600,000 low-cost houses during the period, the government requires developers to build six low-cost houses for every three modest houses and every luxury house they build.
"As matters stand, the establishment of the secondary market is not urgent yet," Simanungkalit told The Jakarta Post yesterday.
"If the government sets up a secondary mortgage, the market mechanism will apply. Investors in the market will only buy the debentures if they are promised higher profits," he said, pointing out that money will always gravitate to where it can earn most.
He added that debentures of low-cost houses might not be traded on the market, as they promise only a small profit margin.
Main obstacle
"The secondary market will only benefit developers as it could provide them with cheaper money from, for example, pension funds and insurance companies," he said.
He pointed out that it could further worsen the current problem of rapidly rising land prices, which remain the main obstacle to the building of cheap housing.
As developers can regain their fund sooner they can also enlarge their land ownership more quickly.
He said that if the government wants to facilitate the development of low-cost houses, it should address problems arising up-stream, specifically the rapidly increasing price of both developed and undeveloped land.
"The main problem up-stream is that conglomerates own almost 80,000 hectares of developed land ready for building, or almost 80 percent of the total developed land in Jabotabek," he said.
The big developers have the capacity of building only 120,000 units per year, which only require some 2,000 hectares of land. Their ownership of 80,000 hectares is, therefore, equivalent to their needs for 40 years.
As they buy the land with bank credits, they have to pay interest on the loans. Costs will mount until they build the houses and sell them. "The developers charge these costs to house buyers," Simanungkalit said.
"This is the problem that should be addressed by the government. The government, I think, should design an appropriate regulation to control the prices of the land," he noted.
He said that the secondary mortgage market could expand land ownership for the developers and further contribute to land price increases.
But he said that if the government wants to address the housing problem in the down-stream, it should be providing cheaper credits for the development of low-cost houses, or subsidize house prices. (13)