Skyrocketing rates hit developers

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)