Lending to property sector to be curbed

JAKARTA (JP): Finance Minister Mar'ie Muhammad said yesterday that the government would take new fiscal measures to curb the unusually steep increase in bank lending to property businesses.

Mar'ie told a hearing with the House Budgetary Commission that the government would not regulate credit allocations to cope with what he saw as the unusually high expansion of bank credits to the property sector.

"The tax director general will take fiscal measures to curb credit expansion," he said in replying to House members' questions about the astronomical expansion in bank lending to the property industry.

Most analysts have warned that the steep rise in bank credits to the property development over the last two years might lead to another wave of bad loans in view of the highly speculative nature of the property business.

Bank Indonesia's Governor Soedradjad Djiwandono also has warned banks against excessive lending to the property industry.

Recent reports showed that bank credits to the property industry, notably apartment buildings, have more than doubled to Rp 20.7 trillion (US$9.5 billion) over the last two years.

Mar'ie argued that regulating credit allocations would not be effective in checking the high credit expansion.

"How could we check whether the credits would be used according to the prescribed allocations," the finance minister said.

Mar'ie saw the upward trend in credit interest rates as a factor which would help curb the credit expansion.

Tax Director General Fuad Bawazier, who accompanied Mar'ie at the hearing, later told newsmen that the government would soon issue new fiscal measures to control the excessive credit expansion.

"I won't elaborate on the upcoming measures because they will be stipulated in a government regulation which will be issued this very month," Fuad said.

But he added that the new measures would be similar to previous government regulations on the income tax on property transactions.

Fuad referred to Government Regulation No.3/1994 effective as of June which imposes income taxes on property transactions worth more than Rp 60 million. The tax was set at a flat rate of three percent of the transaction value.

The income tax is exempted for companies engaged in the property business. (vin)