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SG Indonesia to tighten rules on home loans

Property Here - Wednesday, September 18, 2013

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Indonesia’s central bank plans to revise the rules on the disbursement of housing loans starting next month, according to media reports. 

The first mortgage will be disbursed based on a property’s percentage level of completion, while subsequent housing loans will be disbursed only upon completion. 

This is in addition to the Bank of Indonesia’s loan-to-value (LTV) limit, which took effect this month. Under these rules, home buyers are required to fork out a 40 percent down payment for their second property purchase and 50 percent for subsequent transactions of houses larger than 70 sq m. 

For residential properties sized from 22 sq m to 70 sq m, the LTV limit for first-time purchasing remains at 80 percent, while LTVs for second and subsequent homes were slashed to 70 percent and 60 percent respectively. There are no restrictions on houses measuring less than 22 sq m. 

“This rule essentially shifts banks’ credit risks back to developers (back to 1997 levels) from consumers,” revealed a report from Religare Capital Markets. 

“Consumers used to pay interest on mortgages even during construction period and banks are taking consumers’ credit risks. And now banks will also have to directly take developers’ credit risk, as they will have to give more loans to developers for construction.”

Currently, developers receive 30 percent down payment from home buyers within the first three months, while 50 percent of the purchase price is settled once the loan is granted. The balance is paid for upon TOP (10 percent) and handover (10 percent).

“Thus, under the new rule, developers stand to get less cash up front,” added Religare.  

But it believes the impact of the new measures will be limited due to developers’ strong balance sheets. Moreover, 25 percent of buyers usually pay cash up front.  


Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email