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Ada Pertanyaan? Hubungi Kami ANT, Fathan Qorib, Andin Aditya Rahman
Bank Indonesia (BI) will shortly issue a regulation on loan-to-value (LTV) for real estate borrowings, which is said will increase the LTV ratio for mortgages by introducing a progressive ratio aimed at reducing property speculation.
However, Agus D.W. Martowardojo, Governor of BI, highlighted that the new LTV regulation will also protect consumers by also regulating first mortgages.
“Therefore, there are precautionary measures so that the quality of property loans is maintained and the stability of the financial system retained, but the primary point is to protect consumers,” stated the BI Governor at the BI office complex in Jakarta last Friday.
Agus explained that the LTV regulation will incorporate a consumer protection clause requiring property developers to complete property developments in accordance with their contracts with purchasers.
He also added, “consumer funds must not be used for market speculation as this will conflict with our efforts to retain financial market stability.”
This consumer protection provision, however, limits indentures on first mortgages. Second indentured mortgages will be strictly prohibited.
On this matter, Setyo Maharso, Chairman of the Indonesian Real Estate Association is of the view that BI’s plan to ban indentures on second and subsequent mortgages will be counterproductive considering the retreat of the property sector as a result of an the current unstable economic conditions.
“The timing is not quite right, considering the growth trend of the property sector will also decline as a result of the current unstable economic conditions. Therefore if BI tightens the regulations to stop property growth it will be counterproductive,” stated Setyo.
Difi A. Johansyah, Executive Director of the Communications Department at BI, added that the mortgage regulation will be issued next week, and take effect at the end of this month (September).
Another clause under this new LTV regulation is that down payments cannot be made by loans. This provision also applies to unsecured loans.
The new LTV regulation will also set out provisions on credit disbursements by banks both Sharia and commercial. Credit for property developments will be required to be disbursed in accordance with progress on the property development.
In addition, there will be a reporting obligation on banks for loans related to property construction by developers.
“With this provision, it will be known when credit has been disbursed by a bank but used to construct another site by a developer,” stated Difi.
Previously, the property watchdog, Indonesia Property Watch, expressed their hopes that BI will first properly understand current market conditions before issuing the LTV regulation.
Ali Tranghanda, Executive Director of Indonesia Property Watch, commented that 20 to 30 percent of developer’s capital for the constructing of housing is derived from down payments, and he asserted that BI should better understand this reality.
Ali also stated that the more stringent provisions on mortgages for second houses will result in negative impacts on the supply and demand balance in the housing market. This is mainly because developers are facing high costs for the planning stages before construction as well as licensing costs.
In addition, he also elaborated that “provisions on related housing size limitations must also be avoided because the same house types might have different prices in different regions.”
Based on current market and stakeholder consensus, Ali concludes that BI’s LTV regulation will be ineffective in achieving its purported purpose of developing and protecting Indonesia’s property sector.
(hot/kc)
ANT, Fathan Qorib, Andin Aditya Rahman
Bank Indonesia (BI) will shortly issue a regulation on loan-to-value (LTV) for real estate borrowings, which is said will increase the LTV ratio for mortgages by introducing a progressive ratio aimed at reducing property speculation.
However, Agus D.W. Martowardojo, Governor of BI, highlighted that the new LTV regulation will also protect consumers by also regulating first mortgages.
“Therefore, there are precautionary measures so that the quality of property loans is maintained and the stability of the financial system retained, but the primary point is to protect consumers,” stated the BI Governor at the BI office complex in Jakarta last Friday.
Agus explained that the LTV regulation will incorporate a consumer protection clause requiring property developers to complete property developments in accordance with their contracts with purchasers.
He also added, “consumer funds must not be used for market speculation as this will conflict with our efforts to retain financial market stability.”
This consumer protection provision, however, limits indentures on first mortgages. Second indentured mortgages will be strictly prohibited.
On this matter, Setyo Maharso, Chairman of the Indonesian Real Estate Association is of the view that BI’s plan to ban indentures on second and subsequent mortgages will be counterproductive considering the retreat of the property sector as a result of an the current unstable economic conditions.
“The timing is not quite right, considering the growth trend of the property sector will also decline as a result of the current unstable economic conditions. Therefore if BI tightens the regulations to stop property growth it will be counterproductive,” stated Setyo.
Difi A. Johansyah, Executive Director of the Communications Department at BI, added that the mortgage regulation will be issued next week, and take effect at the end of this month (September).
Another clause under this new LTV regulation is that down payments cannot be made by loans. This provision also applies to unsecured loans.
The new LTV regulation will also set out provisions on credit disbursements by banks both Sharia and commercial. Credit for property developments will be required to be disbursed in accordance with progress on the property development.
In addition, there will be a reporting obligation on banks for loans related to property construction by developers.
“With this provision, it will be known when credit has been disbursed by a bank but used to construct another site by a developer,” stated Difi.
Previously, the property watchdog, Indonesia Property Watch, expressed their hopes that BI will first properly understand current market conditions before issuing the LTV regulation.
Ali Tranghanda, Executive Director of Indonesia Property Watch, commented that 20 to 30 percent of developer’s capital for the constructing of housing is derived from down payments, and he asserted that BI should better understand this reality.
Ali also stated that the more stringent provisions on mortgages for second houses will result in negative impacts on the supply and demand balance in the housing market. This is mainly because developers are facing high costs for the planning stages before construction as well as licensing costs.
In addition, he also elaborated that “provisions on related housing size limitations must also be avoided because the same house types might have different prices in different regions.”
Based on current market and stakeholder consensus, Ali concludes that BI’s LTV regulation will be ineffective in achieving its purported purpose of developing and protecting Indonesia’s property sector.
(hot/kc)