Hundreds of small and middle developers on brink of collapse

JAKARTA (JP): Hundreds of small and medium-scale housing developers are on the brink of collapse due to the credit crunch stemming from the government's monetary policies, according to the Association of Real Estate Developers (REI).

REI chairman Edwin Kawilarang said yesterday the government's tight monetary policy, which has caused lending rates to skyrocket, has put most property projects on hold due to low demand and the rise in financing costs.

He, however, refused to disclose the real number of the property and housing developers which have already fallen into bankruptcy.

"But for your information, at least 789 of the association's members are no longer active," he told Commission IV of the House of Representatives in a hearing.

The association's active members consist of only 1660 companies at present or only 68 percent of the total active members from last year, he said.

He noted the association's Jakarta, West Java and East Java branches lost over 100 members each, followed by Central Java's branch which lost 62 members and South Sulawesi's which lost 55 members.

"But not all the inactive companies are bankrupt. Some of them may not be registering themselves as REI members because they have finished their projects and are inactive now," he said.

He said the sluggishness in the real estate industry also has driven over 192,000 construction workers into unemployment.

Edwin said the tight monetary measure, which prompted an increase in deposit rates to over 25 percent and lending rates to above 30 percent per annum in July was a real blow to property and housing developers.

He acknowledged that interest rates had started to decline but the downward trend in the bank rates did not mean that the financial difficulty was over.

Edwin said that the monetary authority's policy to further curb the increase in bank lending in the property sector would remain a major problem in the future.

"It is a pity ... the government should not be too suspicious of the property sector because the growth in the property industry would also prop up other businesses," he said.

He said the association also asked the government to delay the implementation of Law No. 21/1997 on land ownership fees until Jan. 1, 1999.

The law, which will be imposed starting Jan. 1, states that any change of land and building ownership worth over Rp 30 million, would be subject to a five percent tax.

Edwin said the tax would increase developers' costs, which drove them to increase their product prices.

"At the end, the tax would be burdensome to consumers since they would be forced to buy property at higher prices," he said adding that the postponement of the law's implementation was necessary for developers to help restore ailing property businesses.

At yesterday's hearing, the association also said it has built over 363,000 units of low-cost houses as of October, above the initial target of 300,000 units this year. (08)