Sat, 18 Oct 1997

Skyrocketing rates hit developers

JAKARTA (JP): About half of the 2,400 housing developers in Indonesia have stopped activities because of skyrocketing lending rates due to the ongoing currency crisis, a minister said yesterday.

State Minister of Public Housing Akbar Tandjung said the government would fail to reach its target of building 500,000 low-cost houses, under an ongoing five-year national development program which ends in 1999, if the monetary situation does not recover soon.

"The situation is so severe that developers can not pay their contractors and as a result, contractors can't even afford to pay their workers," Tandjung said after meeting with President Soeharto at Merdeka Palace yesterday.

Higher interest rates, increasing from about 18 percent to 30 percent in the last three months, had also reduced consumers' purchasing power, especially middle and lower class people, the minister said.

Tandjung said most of the developers engaged in the construction of low-cost housing depended heavily on bank loans to finance their business, especially state-owned PT Bank Tabungan Negara (BTN).

BTN specializes in financing middle and low-cost housing projects.

Before the crisis, lending rates for low-cost housing ranged from 11 percent to 14 percent while for the cheapest housing construction the rate was only 8.5 percent, Tandjung said.

The minister said the situation was further worsened by the rising cost of construction materials and liquidity scarcity.

"The President ordered me to coordinate with related ministers and the central bank to find ways to improve liquidity for the housing sector," Tandjung said.

Tandjung hoped that fellow cabinet ministers would be able to find a way out of the crisis.

"But we are in a difficult situation, because we can not force banks to lower their lending rates," he said.

The rupiah has depreciated about 35 percent against the American dollar since July.

The government was forced last month to postpone or review 156 government and state-related projects worth Rp 111.18 trillion (US$38 billion) as part of a retrenchment measure to cope with the rupiah's sharp depreciation.

According to the market outlook of PT Procon Indah and Jones Lang Wootton, Indonesia's property sector will continue to suffer the effects of the currency crisis for the next two years, as lower demand will slow down the market.

"The erosion of wealth caused by the financial turmoil has reduced consumers' purchasing power and forced property buyers to curb acquisition and expansion plans," said its executive Phil Simpson recently. (prb)