Property sector needs major restructuring, analyst says
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)