Locals must get a chance to buy closed banks' assets

JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA) should give priority to local investors to buy properties it takes over from closed banks, a property consultant said yesterday.

Panangian Simanungkalit said local investors, such as pension fund schemes, should be given the option to purchase the assets before other interested parties.

"The local pension funds, for example, should be given the first chance to buy the assets, such as housing complexes."

Expensive assets such as apartments and condominiums might be offered to foreign investors because they would be out of the reach of locals, he added.

According to Panangian, property purchases during the current depressed market were promising investments, especially for long- term investors such as pension funds.

"It is now the time to buy and within the next several years the investment will give high returns," he said.

IBRA, which was established last year to restructure and right the disordered banking sector, has taken over assets and liability of 26 banks which were either liquidated or suspended by the government. It was formed as part of the multibillion dollar International Monetary Fund-sponsored reform program.

Panangian believed the government should offer better concessions to encourage foreign investors to enter the country's property sector.

Measures could include awarding of land titles or land-use rights of up to 90 years.

Panangian, who also the president of the Center for Indonesian Property Studies, said problems in the banking industry could not be separated from those occurring in the property sector.

Assets of the closed banks have been transferred to IBRA, including their claims to debtors, public funds, fixed assets and bank subsidiaries.

Bank Indonesia has said it provided more than Rp 140 trillion to cash-strapped banks to keep them afloat.

Panangian said that bad debt in Indonesia's property sector currently reached Rp 40 trillion, representing 25 percent of total loans to the sector of Rp 180 trillion.

"In 1994, bad debt was only Rp 3.9 trillion, and in just four years it could multiply by over 10 times," he said.

He explained the dire situation occurred because domestic developers aggressively expanded their operations through rupiah loans and U.S. dollar funding. The rupiah's 80 percent collapse against the American greenback had more than tripled their overseas debts in rupiah value.

Most of the loans were used by developers to develop commercial property projects and finance land accumulation. However, 87,000 hectares of land in the greater Jakarta area are currently idle, he added.

He said occupancy rates for commercial properties had tumbled to 60 percent from more than 80 percent during the pre-crisis period.

In addition, land prices in Jakarta's golden triangle had fallen between 40 percent to 60 percent, he said, adding that there would be negative demand in the commercial property sector this year. (gis)