Selasa, 02/10/2007

From Crisis to Upswing
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From Crisis to Upswing

2007 IS AN IMPORTANT year for the Indonesian property business players. A decade ago, exactly at the end of 1997, the national property industry was hit by one of the most severe economic crises in the Asian history. In the period 1997-2000, many developers went bankrupt because of failing to repay debts. The Indonesian Real Estate Association (REI) predicted that the number of bankrupt property companies reached 2,000 or even more.

Some big publicly listed property companies were also vulnerable to debt-related bankruptcy as many of the companies had their US dollar-denominated debts unhedged, resulting in burgeoning losses due to the weakening of rupiah exchange rate against greenback. At the time, there were 23 listed property companies with total debts amounted to US$3.49 billion (approximately Rp19.195 trillion at an exchange rate of Rp5,500 per US$]. The unhedged debts reached Rp15.93 trillion or 83% of the total hedged loans.

The burden was heavier as the rupiah exchange rate once touched Rp18,000 per US dollar from Rp2,500. The situation was very critical as the quality of collectibility in the property sector depended highly on listed property companies. The total amount of potentially-defaulted debts in the property sector during the property crash in Indonesia was around Rp80 triliun. Long time before the crisis, Bank Summa (well-known for channeling huge loans to its business group) was liquidated in December 1992 for violating Bank Indonesia’s legal lending limit regulation.

Being aggressive in financing property projects, the bank saw the total of its non-performing property loans reach US$750 million during the crisis Then in September 1997 the government closed down 16 banks and in 1999 took the same action against 30 more banks, marking the darkest days in the country’s history. After that, all Indonesian developers were required to stick to the restructuring program introduced by the Indonesian Bank Restructuring Agency (IBRA). Although the progress looked too slow, the developers’ debt restructuring program at IBRA was fairly successful as indicated by the number of surviving property companies.

These property giants were supposed to close down permanently as their liabilities exceeded assets, but in fact they have survived until today. In due course, exactly in early 2000, the national property industry began to show signals of life. Developers started building new shopping centers. Concrete piles for apartment projects were seen in many places, not only in Jakarta but also in Bogor, Tangerang, Bekasi, Surabaya, Bandung, Medan, Balikpapan, Makassar, and Bali. Accordingly, property loans increased significantly. In the first semester of 2007 the property loans rose by 26.96%. Bank Indonesia reported that as of June 2007 the total amount of disbursed property loans reached Rp130.9 trillion. In June 2007 the figure stood at Rp103 trillion.

Of the amount, construction loans amounted to Rp31 trillion; while real estate loans and housing/apartment ownership loans stood at Rp17.4 trillion and Rp82.5 trillion respectively. In fact many observers had predicted that property loans in 2007 would grow by 15%-20% or from Rp72.6 trillion in 2006 to Rp90.4 trillion in 2007. The property loans are absolutely flying. Although non performing loans (NPLs) are considered still at the safe level—learning from the subprime mortgage crisis in the US and the Indonesian property crash 10 years ago—all parties should be alert to any spectacular increase in the property loans as signals of oversupply of condominiums and shopping centers are becoming more obvious.

Imprudent management of funds in the property industry will inevitably result in fatal consequences for the economy. We should not neglect the signals of oversupply in the condominium market. When building condominiums, developers will focus on certain target market. They really count on foreigners to buy their properties.

But the fact is the government still restricts foreign ownership of property in Indonesia. The only available door for the foreigners is the right to use land scheme, which is extendable. In the meantime, the governments of neighboring countries such as Singapore and Malaysia have taken opposite direction by formulating and adopting foreign investor-friendly regulations. Other problem is the imposition of luxury tax of 20% on condominiums. Developers and potential property buyers see this tax as a heavy burden. The government should review the figure and comes up with a clear definition of the tax objects. By doing so, it is expected that oversupply threatening the condominium market will vanish. (Deddy H. Pakpahan)