Indonesia Acts to Tighten Lending Rules

From June onwards, lending institutions in Indonesia will tighten rules surrounding lending, which will include strict minimum payments for property purchases. The Central Bank is anxious to avoid the potential of any loan bubbles forming which could slow growth, and sees minimum payments as a way of slowing consumer loans, as levels have surged over the last couple of years.

Anyone wanting to purchase a home will only be able to borrow up to 70% of the property’s value, although homes of less than 70 metres will not be affected by these new rules. Lending is expected to grow by 27% this year, and last year private consumption accounted for 56% of the country’s economic growth which was 6.5% in 2011.

According to economists, these new regulations will discourage middle income earners from investing in speculative property. Indonesia is facing high demand for property, but the growth of the housing market has been hampered by government red tape, high interest rates, high construction costs, and restrictions on foreign ownership.

According to Bank Indonesia’s Residential Property Survey, prices rose by 4.5% to the year ending the third quarter of 2011, and property prices have been steadily increasing over the last couple of years or so.

However some 70% of people buying residential property are doing so for their own use, so there is far less risk of prices rising due to investors, but there are worries over the condominium market becoming oversupplied, as an average of 8,468 units have entered the market annually over the last five years, but this year the figure is expected to reach 20,302.

Indian Developers Agree to a New Code of Conduct

The Confederation of Real Estate Developers Associations of India (CREDAI) has agreed to a new code of conduct which it hopes will resolve many of the complaints made about the process of buying a house. Most of the complaints centre on delays in taking possession of the property, additional money being demanded over the agreed price, and failure to meet commitments.

In the past buyers have been concerned that their only recourse over complaints is long and drawn out litigation, and that the process lacked transparency and accountability. The 8,000 plus members of CREDAI will now have to sign a Code of Conduct which is a self-governing mechanism designed to get developers to adhere to certain levels of conduct.

These include being more transparent over area calculations and specifications, and to declare the amount of compensation payable in the event of any delays over the project being finished. The aim of the new Code of Conduct is to increase transparency and to help buyers differentiate between good developers and bad developers. In addition CREDAI has introduced a new Consumer Grievance Redressal Forum which allows any member of the public who has bought property through a CREDAI member, to lodge a complaint against them if they are dissatisfied with the level of service they received.

CREDAI has already run a pilot project, and found that 90% of the complaints against developers were resolved due to peer pressure on the forum. The forum is comprised of legal experts and experienced developers who decide whether the complaint will be upheld. CREDAI is currently running an advertising campaign to increase awareness of this new code, and hopes that this will restore the faith of consumers.