Housing demand to surge on lower interest rate

The Jakarta Post, Jakarta

Housing demand this year is expected to increase by 25 percent driven by lower interest rate environment, a senior executive of a property developer said.

Managing director of PT Ciputra Development Harun Hajadi said on Wednesday that the lower interest rate would make housing loan cheaper which should in turn help boost demand.

"This is the first time in our history that loans for housing carry very low interest rate of around 13-15 percent. If the rate declines further next year, then we expect there will be a boom in the housing sector," said Harun.

Harun recalled that the last time housing buyers could enjoy a low interest rate was in 1996 before the country tumbled into the regional financial crisis. At the time, rate on housing loans was around 16 percent.

Bank Indonesia has been aggressively cutting down its benchmark rate since early this year in a bid to push banks to lower their lending rates. The benchmark rate is now at 8.91 percent, compared to more than 13 percent in January.

Property analysts, however, said that the stronger demand for houses would push prices higher by between 15 percent and 20 percent because of a limited supply in the market.

Harun said that the limited supply was because most property companies had yet to expand their property development projects.

Elsewhere, Harun explained that for the first semester of this year Ciputra managed to book sales of Rp 234 billion (US$27.8 million) and a net profit of Rp 192 billion.

For 2003 the company, which was founded by tycoon Ciputra, forecasted an increase in sales to Rp 483 billion from Rp 381 billion last year.

Ciputra Development is one of the country's largest property companies which owns among others the Ciputra Mall and Ciputra Golden Triangle in West Jakarta.

Currently, Ciputra is undergoing a debt restructuring program with its creditors for a total debt load of US$246 million.

The company said that it hoped to conclude the program this year through several means of settlements such as debt conversion into equity, asset sales and debt buy back.