Fri, 17 Mar 2000

IBRA taken to task on property bad debt bind

JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA) has failed to make significant progress in restructuring bad debts of property developers since assuming them two years ago, property expert Panangian Simanjuntak said here on Wednesday.

The founder of the Panangian Consulting Group blamed the agency for the slow pace of the debt restructuring. He charged officials with not only lacking knowledge and experience in the property market, but also failing to realize the urgency of the situation.

"IBRA officials have insufficient knowledge about property. This is why they are so indecisive and often afraid to make decisions."

IBRA has completed the restructuring of about 10 percent of the total debts of property developers, he added.

The agency has taken over some Rp 217 trillion in bad loans from state and private banks. About Rp 40 trillion of the amount was owed by property developers, who were required to surrender their assets as the collateral on the bad debts.

Panangian said the agency's officials should focus on the property sector and apply the proper method of restructuring for borrowers in the property sector.

One effective alternative of restructuring, he said, was through a sale of the borrowers' property assets.

For the best results, Panangian said, asset sales through an auction should only apply to those with a value of Rp 500 million or below.

He said high-profile assets such as hotels or other commercial property should be sold in closed-door negotiations and transactions as the buyers of the assets usually avoided media exposure.

"The potential buyers of an expensive painting compete to win their bid for prestige, but it is not so with the buyers of high- profile properties like a hotel. They want to do it on the quiet."

Panangian said IBRA needed to have both macro and micro policies in ensuring that its property sales attracted foreign investors.

In the macro policy, IBRA should cooperate with the coordinating minister of the economy, finance and industry in providing a more conducive government policy on foreign investment in property.

"The government could perhaps issue a decree temporarily banning construction activities, or any new issuance of land titles for commercial properties for the next 10 years, for example."

He said such a move would be a tacit guarantee by the government that there would not be an increase in supply in the commercial property market for sometime.

"If this worked, it would create positive market sentiment which in turn would gradually bring up property prices as the growth of the property supply would be kept limited."

He added there should be new measures by the government to cut bureaucratic red tape for foreigners making property purchases.

"Land ownership by foreigners should be based on stronger regulations and law." He said the government should eliminate its reluctance toward foreigners owning local property.

In the micro side of the policy, IBRA should be able to act as a better salesman and apply the necessary marketing gimmicks.

"IBRA should go abroad to join the international property fair and clearly announce that Indonesia is opening its property market for foreigners," he said.

Panangian said Asian investors, particularly from Singapore, Hong Kong, Taiwan, South Korea and Japan, would be at the vanguard of foreigners coming here in great numbers from 2001 until 2002 for property purchases.

"These countries know Indonesia better and have more business networks with the businesspeople in the country," he said.

The next group, he said, would be from the United States, Europe, the Middle East and Australia, set to arrive in 2003 and 2004, he said.

"The recovery of the property sector in Indonesia can be considered a success if the country could make foreign investors come here," he said.

"The property sector in Indonesia collapsed because of the sector's U.S. dollar debts. Now we need foreign buyers with their fresh dollars in hand to come here to fix the problem." (udi)