Blue Skies Seen Despite New Auto, Home Loan Rules

Francezka Nangoy

With changes to consumer finance rules for home and vehicle purchases coming into effect on Friday, executives in the property and automotive sectors say that demand is likely to continue to remain strong.

Tulus Santosa, corporate secretary of Ciputra Development, says the property developer would have to wait a few months to evaluate the impact of the policy but remains confident it can reach its goals. The company is aiming for Rp 6.4 trillion ($678 million) in sales this year, almost triple the Rp 2.2 trillion in homes it sold in 2011.

“There will be some impact, but from what we see now, this year’s target is manageable,” Tulus said on Thursday.

Home buyers who take out mortgages account for 50 percent of Ciputra Development’s sales. The new rules, which require a higher down payment, are more likely to affect customers who would buy property as an investment.

“For end-user buyers, they will buy based on their needs,” Tulus said.

From Friday, financial regulators will enforce a minimum down payment of 30 percent for houses. Those purchasing automobiles will be required to provide a 25 percent down payment if funded by a finance company and 30 percent in funded by a bank. Previous down payments were as low as 5 percent, and regulators imposed the new rules to curb excessive lending with borrowing costs at record lows.

Shares in property developers have fallen since the March 16 announcement on the changes. Ciputra Development has lost 6.8 percent since then, including a decline of 4.2 percent on Thursday. Alam Sutera has fallen 11 percent in the past three months, while Bumi Serpong Damai dropped 0.8 percent in the same period.

The property sector as a whole dropped 2.9 percent on Thursday, compared to the benchmark stock measure Jakarta Composite Index’s 1.8 percent decline. The miscellaneous sector — which includes automotive distributor Astra International — dropped 2.9 percent.

Budhy Siallagan, a property analyst with eTrading Securities, said there might be further impact as investors monitor companies’ sales performances.

“The impact could last two or three months before investors adjust to the idea, but it will be limited to certain stocks that have bigger exposure to mortgage holders,” he said.

Budhy said companies including Bumi Serpong Damai, Alam Sutra Realty and Ciputra Surya — a subsidiary of Ciputra Development — might experience some impact on their revenue growth because some of their properties are sold to middle- to lower-income consumers. Developers that specialize in condominiums and apartments, such as Agung Podomoro Land, are likely to see very little impact, he said.

Investors should take a long-term view of investing in property stocks, Budhy said, because companies tend to book their sales only after the projects have been completed. Still, he said, Indonesia’s property market was still in the growth phase and investors should take advantage of it.

In the automotive industry, Johnny Darmawan, president director of Toyota Astra Motor, said he did not think the policy was necessary, but he added that consumers had been purchasing more vehicles than usual in anticipation of the changes in down payments.

“There’s no need to implement the down payment rules. Non-performing loans in the four-wheeler credit sector are less than 1 percent,” he said on Wednesday.

Car sales in May reached 95,000 units, the highest in a single month, he said, because car dealers were pushing to sell as many vehicles as possible before the higher down payment rules. That represented a 56 percent increase from May 2011.

“Overall, we may see people delaying their decisions to purchase a new car, but we will still see an increase in sales this year, albeit lower than the expected one million units,” said Johnny, who is deputy chairman of the Association of Indonesian Automotive Industries (Gaikindo).

The group’s forecast of 850,000 units to be sold this year is achievable, he said.

The premium market will not be affected because the rich will still have money to spend and 75 percent of premium cars are bought with cash, Johnny said, adding that cars priced at less than Rp 200 million are purchased mostly by loans.

Gaikindo was among the most public detractors of the new regulations. Groups such as Real Estate Indonesia and the Indonesian Financial Services Association (APPI) also decried the plan.

Fitch Ratings supported the rules imposed by regulators including the central bank, saying in a statement on Thursday that the moves were “likely to improve underwriting quality and slow lending growth.”

“The central bank has been proactive in issuing new regulations to curb excessive deterioration in consumer-financing asset quality, and to curb inflation,” Fitch said. “In January, Bank Indonesia set new rules for credit cards, with the aim of reducing risk in that industry where default rates have been increasing.”

Fitch said the impact of the changes to down payments would be felt mainly at non-bank finance companies, such as multi-finance companies, which are more active than banks in higher-risk lending.

The rules are unlikely to trigger a drop in bank lending because most banks have already imposed a maximum loan-to-value of about 75 percent, meaning that the down payment has been set at 25 percent, Fitch said.

Additional reporting by Faisal Maliki Baskoro