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.
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