Dzulfiqar Fathur Rahman
The Jakarta Post
The latest move by Bank Indonesia (BI) to relax down-payment regulations to boost property and automotive sales will hinge on the appetites of consumers and banks, with the former facing much-reduced purchasing power as a result of the coronavirus pandemic.
BI Governor Perry Warjiyo announced on Thursday that the central bank would relax the regulations to allow zero percent down payments for both mortgages and automotive loans to boost demand in both sectors, which have been battered by the COVID-19-induced downturn.
The central bank has relaxed the loan-to-value (LTV) and financing-to-value (FTV) ratios, the ratios between the loan and the asset value, to 100 percent, from the previous 85 to 95 percent depending on property type. The LTV is an often-used ratio in mortgage lending to determine the size of down payment required and whether a lender will extend credit to a borrower. These relaxation policies are set to take effect starting from March to December this year.
However, Bahana Sekuritas economist Satria Sambijantoro said on Friday the central bank’s policy to allow lower down payments for mortgages might not be in line with consumer needs. Consumers generally aim to pay a larger down payment for mortgages to reduce their outstanding loans in the future, for fear that interest rates could rise, he said.
“I doubt that relaxing the down payment rules can stimulate demand among buyers since they have concerns about large instalments and higher interest rates,” Satria told The Jakarta Post in a phone interview, adding that consumers might have similar concerns regarding vehicle loans, which are also weighed down by a lack of appetite to buy vehicles because of reduced mobility during the pandemic.
Indonesia is aiming for economic recovery this year, after entering an economic recession last year for the first time since 1998, with the GDP dropping by 2.07 percent in 2020 as most economic components fell. Household spending fell 2.63 percent last year, which was also contributed by a fall in automotive sales.
Sales of passenger cars and motorcycles were down by 50.49 percent and 43.54 percent, respectively, in 2020, Statistics Indonesia (BPS) data show. BI’s monetary policy to allow zero-percent down payments for automotive loans follows the government’s move to cut the luxury goods sales tax on sedans and two-wheel drive cars with engines of 1,500 cc or below. The luxury sales tax cut will also apply for a three-month period starting from March 1.
The policy also came as BI cut its benchmark interest rate by 25 basis points on Thursday, bringing it down to 3.5 percent, the lowest level since the rate was introduced in 2016, as the central bank pledged to support the country’s economic recovery. BI has also lowered its economic growth projection for the country to between 4.3 and 5.3 percent for 2021, down from its previous projection of between 4.8 and 5.8 percent.
Perry attributed the lower projection to lower-than-expected consumer spending and property investment in last year’s fourth quarter amid continued mobility restrictions in Indonesia. In the housing sector, the annual growth in mortgages for both houses and apartments was recorded at 3.42 percent in the October-December period last year, less than half of the growth rate in the same period in 2019, according to the central bank survey released on Wednesday. Meanwhile, Bank Permata economist Josua Pardede said the combination of policies from the government and the central bank was still deemed necessary given the declines in consumer spending on durable goods like housing and transportation. However, whether banks accept zero percent down payments for mortgages and automotive loans may depend on their appetite, liquidity and risk assessment.
BI stated that only eligible banks with a less than 5 percent non-performing loan (NPL) and non-performing financing (NPF) ratios could provide the zero-percent down payment policy. “Risk management varies from one bank to another,” Josua told the Post in a phone interview on Friday. “It may not be widespread. If there is no appetite for mortgages or vehicle loans, the down payment may not be zero percent.” The country’s largest private lender Bank Central Asia (BCA) welcomed the central bank’s latest move as it was aimed at spurring mortgage disbursement in the property sector, said Hera Haryn, the executive vice president of corporate communications. BCA booked a rise of 0.5 percentage points annually to 1.8 percent in its NPL ratio last year.
But this stands well below the industry-wide average at 3.18 percent and the 5 percent upper limit outlined by the Financial Services Authority (OJK). However, its loan provisions rose 152.3 percent annually to Rp 11.6 trillion (US$824.6 million) in 2020 as a precautionary measure to account for potentially deteriorating assets. BCA recorded a 3.7 percent year-on-year contraction to Rp 90.2 trillion in its mortgage disbursement last year, said Hera. The bank’s total loan disbursement was down by 2.5 percent to Rp 588.7 trillion last year, driven by declines in the small business and consumer segments. “We hope the consumer business will recover soon in line with various policies from the government, regulators and banking authorities, as well as the vaccination program the government is currently rolling out,” Hera told the Post via text message on Friday.
Real Estate Indonesia (REI) chairman Totok Lusida said on Friday the central bank’s policy was expected to revive the property market and lead to a 5 percent growth in sales for this year. The policy is expected to help developers lure middle-income and new family homebuyers, he added. The central bank reported a 20.59 percent yoy dip in the total sales of all house types in the fourth quarter of 2020, according to the latest BI survey. The contraction was less severe than the 30.93 percent contraction in the previous quarter. “I am optimistic it will be good in March,” Totok told the Post in a phone interview. “The property sector is related to 174 other industries, so it requires support from all sectors.”
This article was published in thejakartapost.com with the title “BI policy to boost weak demand hinges on consumer, bank appetitesJakartans sign up to buy their own homes”. Click to read: https://www.thejakartapost.com/news/2021/02/21/bi-policy-to-boost-weak-demand-hinges-on-consumer-bank-appetites.html.
