Paryono Ramadhan
The Indonesian government’s approach to developing the domestic property business faces ongoing scrutiny, with some stakeholders asserting that current policies do not fully support the sector. Specific regulations issued by Bank Indonesia (BI), such as the ban on "inden" (off-plan or pre-sale transactions), are cited by developers as creating significant burdens. However, financial authorities maintain that these measures are carefully considered and essential for market health and consumer welfare.
The Regulatory Landscape: LTV and the "Inden" Ban
At the heart of the debate are two key policies: the Loan-to-Value (LTV) ratio and the prohibition of "inden" sales for certain property types. The LTV policy dictates the maximum amount banks can lend relative to the property’s appraised value, directly impacting the down payment required from buyers. While LTV adjustments are often used as a macroeconomic tool to stimulate or cool the market, the "inden" ban represents a more direct intervention into traditional property sales practices.
"Inden" refers to the practice of selling property units that are still under construction or even in the design phase. Under this model, buyers typically make down payments and subsequent installments, often through KPR (Kredit Pemilikan Rumah or Home Ownership Credit) facilities, before the property is completed. This practice has been a cornerstone of developer financing in Indonesia for decades, providing crucial upfront capital without the immediate need for bank loans.
However, the "inden" system has also been prone to abuse. Instances of fraudulent developers failing to complete projects after collecting payments, or significantly delaying construction, have plagued the market, leaving consumers in vulnerable positions. Moreover, the practice can fuel speculative buying, contributing to inflated property prices and potential market bubbles, as buyers acquire properties with the sole intention of reselling them for profit before completion, often without ever occupying them.
OJK’s Stance: Assuring Stability and Consumer Trust
The Financial Services Authority (OJK) has stepped forward to reassure the public and industry players regarding the implications of these policies. Probo Sukesi, Head of Licensing at OJK Regional Office IV Central Java-Special Region of Yogyakarta, stated in Semarang last week that concerns over a potential slowdown in the housing sector due to LTV and the "inden" ban are unfounded. He emphasized that these decisions were meticulously calculated by the government with the primary objective of alleviating the burden on the public.
Sukesi elaborated that the "inden" ban is designed to empower consumers by ensuring they have a clear understanding of the product before committing to a purchase. By prohibiting pre-sales, buyers are expected to be able to physically inspect a completed property, or at least one substantially underway, minimizing the risk of misrepresentation or non-delivery. This transparency, according to OJK, is expected to enhance consumer confidence and, paradoxically, could boost purchasing power by fostering a more secure and trustworthy market environment. OJK also calls for greater transparency from developers, urging them to fully disclose all risks, impacts, and product criteria to prospective buyers. This emphasis on informed decision-making is seen as crucial for building long-term market sustainability.
Developer Resistance: The Strain on Working Capital
Despite the regulatory assurances, the property development sector has voiced considerable apprehension. Eddy Ganefo, Chairman of the Indonesian Real Estate and Housing Developers Association (Apersi), unequivocally stated that the "inden" ban fundamentally strains developers’ finances. He highlighted that the majority of funding for property construction traditionally originates from KPR applications submitted by buyers for "inden" units. This system allowed developers to access interest-free capital directly from prospective homeowners via their mortgage approvals, significantly easing cash flow.
"This creates confusion when we intend to build property," Ganefo remarked, underscoring the disruption to established financing models. The prohibition on "inden" forces developers to seek alternative funding sources, primarily through conventional bank loans. This shift entails substantial new challenges, including interest payments, collateral requirements, and potentially lengthier approval processes, all of which contrast sharply with the direct, interest-free capital previously obtained through buyer KPRs.
PT Intiland’s Corporate Secretary, Teresia Rustandi, echoed these sentiments, expressing her company’s reservations about the "inden" ban, particularly concerning working capital for new projects. Rustandi explained that Intiland, like many developers, heavily relies on KPR-backed "inden" sales to finance its developments. The new policy, she asserted, significantly burdens the company’s operational liquidity. "We become overwhelmed when we want to start a new project," she stated, illustrating the immediate financial strain.
Rustandi suggested that such a restrictive policy should be counterbalanced by compensatory measures designed to facilitate developers’ access to capital. She proposed that the government could ease access to working capital loans and construction credits from banks, thereby mitigating the financial crunch caused by the "inden ban.
Acknowledged Benefits: Curbing Mafia and Speculation
Despite the financial strain, even developers acknowledge certain positive aspects of the "inden" ban. Eddy Ganefo admitted that prohibiting pre-sales could effectively deter "land mafia" and property speculators. These illicit actors often inflate land prices, making it exceedingly difficult for developers, especially those focused on subsidized housing for low-income communities (MBR), to acquire land at reasonable costs. The consequence is higher production costs for subsidized homes, ultimately rendering them unaffordable for the very demographic they are intended to serve. By curbing speculation, the policy indirectly supports the government’s affordable housing agenda.
Teresia Rustandi also acknowledged the government’s rationale behind the "inden" ban, linking it to past instances of unscrupulous developers. "Consumers have paid, but the property was never built," she recounted, highlighting the consumer protection aspect that necessitated the intervention. This recognition underscores the complex trade-offs inherent in the policy: financial challenges for legitimate developers versus safeguarding consumers from fraudulent practices.
Economic Analysis: Balancing Stimulus and Stability
Property observer Anton Sitorus from Jones Lang Lasalle affirmed that the core objective of the "inden" ban, especially when linked to KPR, is consumer protection. He emphasized its role in preventing developers from absconding mid-project and in suppressing property speculation. This policy, Sitorus noted, offers greater peace of mind to buyers, ensuring they are not duped by dishonest developers, as units must be completed or significantly advanced before payments are finalized. While acknowledging its positive intent, Sitorus also pointed out the policy’s negative side, specifically the funding difficulties it creates for developers in the initial phases of construction.
Economist Enny Sri Hartati from Indef provided a broader macroeconomic perspective, connecting the LTV policy with the "inden" ban. She explained that while LTV adjustments are primarily intended to stimulate property purchases by requiring smaller down payments (e.g., 20%), the "inden" ban serves as a crucial countermeasure to prevent excessive, speculative buying—a phenomenon often referred to as a "bubble effect." Hartati posited that the government seeks to achieve a delicate balance in the property market: stimulating demand through LTV relaxation while simultaneously preventing an unsustainable surge in prices and speculative activity through the "inden" prohibition. "So I think these policies complement each other," she concluded, highlighting their synergistic intent.
Market Dynamics and Data: A Challenging Environment
The debate over these policies unfolds against a backdrop of a challenging property market. Teresia Rustandi noted that the property market experienced a significant decline of up to 40 percent in the first quarter, suggesting that this might be an opportune moment to reconsider or even revoke the "inden" ban. The hope is that such a move could reignite market enthusiasm and stimulate sales.
Indonesia’s property market has historically been a significant contributor to the national economy, supporting numerous ancillary industries and creating extensive employment. However, it is also susceptible to global economic fluctuations, domestic interest rate changes, and regulatory shifts. For instance, the central bank (BI) has periodically adjusted LTV ratios, often in response to broader economic conditions or specific market overheating concerns. For example, LTV relaxations were a common tool used to stimulate demand during periods of economic slowdown. The current tightening measures, particularly the "inden" ban, signify a shift towards a more prudential approach, prioritizing stability and consumer protection even at the potential cost of short-term growth.
The housing backlog in Indonesia remains substantial, estimated to be in the millions of units, particularly for affordable housing. This persistent demand underscores the critical need for a vibrant and efficient property development sector. However, the government also faces the challenge of ensuring that this demand is met sustainably, without exacerbating social inequalities or creating financial instability. The "land mafia" issue, for instance, not only drives up costs but also complicates land acquisition for legitimate developers, hindering efforts to address the housing deficit. Speculative buying, while potentially boosting sales figures in the short term, can distort market prices, making homeownership unattainable for genuine end-users, especially first-time buyers and the MBR segment.
The Path Forward: A Balancing Act for Sustainable Growth
The current regulatory framework thus represents a complex balancing act. On one hand, the government aims to foster an equitable and stable property market where consumers are protected from fraudulent practices and speculative excesses are contained. On the other hand, it must avoid stifling the legitimate growth of the property sector, which is vital for economic development and job creation.
For developers, adapting to the new reality means re-evaluating traditional financing models and strengthening relationships with financial institutions. It necessitates exploring new avenues for capital, such as corporate bonds, equity financing, or even direct foreign investment, alongside advocating for more supportive banking policies for construction and working capital loans. The call for compensatory measures, such as streamlined credit facilities, is a direct reflection of this need.
For consumers, the policies, while potentially leading to slightly higher upfront costs due to larger down payments or completed units, offer enhanced security. The ability to inspect a completed or near-complete property before purchase significantly reduces personal financial risk and fosters greater trust in the market. This improved trust, in the long run, could indeed stimulate genuine demand from end-users rather than speculators.
Ultimately, the effectiveness of these policies will depend on continuous dialogue between regulators and industry stakeholders. Adjustments, refinements, and innovative solutions will likely be required to ensure that the twin goals of market stability and sustainable growth can be achieved simultaneously in Indonesia’s dynamic property landscape. The government’s current stance reflects a commitment to a more mature and transparent market, even if the transition poses significant challenges for an industry accustomed to different norms.
