Property sector needs major restructuring, analyst says
JAKARTA (JP): The government's bank recapitalization program should be immediately followed by a restructuring of the shattered property sector to defuse a ticking time bomb, a property consultant said over the weekend.
Panangian Simanungkalit warned that the property sector, weighed down by bad loans of about Rp 48 trillion (US$5.6 billion), could become the catalyst to hurl the banking sector into disaster.
"Leaving the property sector as it is in the hope that the industry could be revived once the banks are recapitalized is like leaving a time bomb behind," he told reporters at a gathering on Saturday.
Panangian said the property sector's aggressive development in the past through massive bank financing failed to take into account real demand.
The result now was that most developers were unable to meet even debt interest payments because there were no takers for their products, due to oversupply and the economic crisis.
"If this goes on, banks will continue to suffer and the recapitalization program will be useless," he said.
He believed the restructuring should focus on distinguishing between viable developers who could still be bailed out and others which should be immediately liquidated.
Bankrupt
Panangian said about 600 of the country's 1,500 developers should be immediately declared bankrupt to allow bank creditors to seize their assets.
"About 60 percent of the bad loans are owed by those troubled developers," Panangian said.
"They're mostly large developers linked to certain tycoons."
He said there was still hope for the remaining 900 developers, particularly small and medium-sized property firms, because there remained a market for their products and their debt-to-equity ratio was relatively low.
Panangian said the banking authority should provide several options for viable developers including debt cuts, interest rate cuts and new credit facilities.
He predicted the property sector would begin recovery in 2001, but it would be contingent on a smooth running of the June general election.
"With the industry's upturn, we expect that the viable developers will become healthy by 2001."
The government is trying to recapitalize the country's ailing banking sector by providing up to 80 percent of the funding requirement, estimated to reach between $35 billion and 40 billion.
President B.J. Habibie said last week that no-hope institutions would be closed down on Feb. 27.
About half of the country's more than 200 commercial banks are suffering acute capital deficiency, partly due to the huge amount of nonperforming loans of about Rp 300 trillion to Rp 400 trillion. About half of the amount is categorized as bad loans.
Under the recapitalization program, nonperforming loans will be transferred to the asset management unit of the Indonesian Bank Restructuring Agency (IBRA).
Panangian disagreed with the transferring of bad loans from state Bank Tabungan Negara -- the largest lender to the property sector -- to the agency because he believed the former was more skilled and experienced in dealing with property firms.
Panangian was also disappointed by IBRA's handling of the fixed assets handed over by debt-ridden banks to repay more than Rp 140 trillion in central bank liquidity support. About Rp 100 trillion is estimated to be in the form of property.
He argued the agency should have immediately sold the assets, even though prices were low, because holding onto them would only cause a further deterioration in their value.
IBRA announced the assets would not be sold through a fire sale, but over a four-year period.
"This statement is against the market... they should have accepted a cut loss because the property price will not go up as expected," Panangian said. (rei)