Rapid property development may cause cash crisis

Rapid property development may cause cash crisis

JAKARTA (JP): The Association of Real Estate Indonesia
acknowledged yesterday that the extensive property development in
the country may cause a crash crisis due to possible huge non-
performing loans.

"The growing demand for loans in the real estate sector, which
has expanded at an unchecked pace, however, should have not been
generalized," the association's chairman, Enggartiasto Lukita,
said in a press conference yesterday.

He said the association recommends that loans for the
establishment of new golf courses, apartments and large-scale
property projects be controlled, but not loans for medium and
small-scale housing developments.

Recent reports said that loans for the property business
reached some Rp 28.2 trillion (US$12.8 billion) as of October,
which accounts for 15 percent of the country's total loans.
Around 70 percent of the property loans was allocated for the
development of apartments and middle-class houses.

Meanwhile, Bank Indonesia, the central bank, reported that
commercial banks' total outstanding loans as of September reached
Rp 174.28 trillion, 18 percent higher than Rp 147.34 trillion as
of last December.

Enggar refused to specify the portions of loans for the
development of large, medium and small property projects. He just
said that credits for the construction of houses and real estates
increased by 47 percent during the period between March 1993 and
March 1994.

During the March-October period of this year, credits for the
construction of real estates alone expanded by 44.6 percent and
for houses by 34.1 percent.

Investment

The property business has also attracted investors. Data from
the Investment Coordinating Board show that during the first 10
months of this year, the board approved 19 property projects
worth Rp 2.82 trillion (US$1.28 billion) committed by domestic
investors and 12 other projects worth $645 million committed by
foreign joint ventures.

In the January-October period, the board also approved Rp
721.3 billion in domestic investment commitments for office
building development and $976 million in foreign investments.

The total loan approvals in the March-October period reached
more than Rp 9 trillion, of which Rp 3.2 trillion was allocated
for real estate and Rp 3 trillion each for office and housing
facilities.

Enggar said that property still has good prospects in 1995,
especially in residential and housing sectors as well as office
buildings after seeing an oversupply in the last three years.

He said that in the apartment business, there will be 73
projects to be completed by 1997 which will supply 29,941 units,
which means a decrease in the occupancy rate of middle-class
apartment blocks.

There will also be 21 office buildings to be open by 1996,
offering 1,2227 square-meters of space in addition to eight other
office buildings which will be sold through strata title. An
oversupply of about 15 percent in the office space sector will be
likely in 1997, he said.(icn)