Demand for Indonesia's House & Apartment Credit Remains Bleak
Although Indonesia's central bank (Bank Indonesia) lowered its benchmark interest rate by 150 basis points in 2016 and eased the nation's loan-to-value (LTV) ratio, implying it should be easier for Indonesian consumers to buy a house or apartment, the disbursement of house ownership credit (kredit pemilikan rumah, abbreviated as KPR) and apartment ownership credit (kredit pemilikan apartment, KPA) in Indonesia remains bleak so far in 2017.
Based on data from Bank Indonesia, the combined growth of KPR and KPA credit only stood at 7.4 percent year-on-year (y/y) in February 2017, down from a 8.3 percent (y/y) growth pace in the preceding month. Meanwhile, compared to the growth pace in February last year, growth slowed as well. Whereas in February 2016 the combined growth rate of KPR and KPA was 7.7 percent (y/y), this pace fell to 7.4 percent (y/y) in February 2017.
This is a remarkable development because - besides the more accomodative monetary policy of Bank Indonesia - Indonesia's economic acceleration (the nation's five-year economic slowdown ended in 2016) boosts people's purchasing power as well as consumer confidence in Southeast Asia's largest economy. However, apparently the macroeconomic improvement is yet to impact on property demand.
For Indonesian financial institutions growing KPR and KPA disbursement is important as these credit types account for nearly 52 percent of banks' total property credit disbursement. The majority of home buyers in Indonesia use KPR from a bank to finance the purchase of their house. However, it is often complained that interest rates on KPR remain very high despite Bank Indonesia's monetary easing in 2016 and therefore it remains a somewhat unattractive option for consumers (although the government provides subsidies for the low-income group in Indonesia that uses KPR to finance a first-time property purchase).
It is also interesting to note that - in contrast to KPR and KPA - property credit, construction credit, and real estate credit all grew in Indonesia in February 2017 (see table below), indicating there is rising activity in terms of property construction and development.
Herry Purwanto, Retail Director at Bank Bukopin, says sluggish KPR and KPA growth so far in 2017 is caused by ongoing subdued purchasing power of Indonesian consumers in the first quarter of 2017. However, analysts are optimistic that KPR and KPA disbursement growth will accelerate in the second quarter of the year in line with Indonesia's further macroeconomic acceleration.
Property Credit Indonesia (in IDR trillion):
| Type | February 2016 |
February 2017 |
Y/Y Growth Feb 2016 |
Y/Y Growth Feb 2017 |
| Property Credit | 614.0 | 706.2 | 11.4 | 15.0 |
| House Ownership Credit (KPR) + Apartment Ownership Credit (KPA) |
342.1 | 367.6 | 7.7 | 7.4 |
| Construction Credit | 165.1 | 209.6 | 15.3 | 27.0 |
| Real Estate Credit | 106.9 | 129.0 | 18.5 | 20.7 |
Source: Bank Indonesia