Eddy Hussy, Chairman, Real Estate Indonesia: Interview

Interview: Eddy Hussy

What is your outlook for the property sector?

EDDY HUSSY: We still believe the property sector in Indonesia has a positive outlook. We can already see that 2016 is going to be better than 2015 due to new government regulations, amendments to existing laws, improvements in the ease of doing business and relaxation of foreign ownership rules. There are also very promising programmes, such as the government’s “One Million Houses Programme” for social housing. These initiatives are helping boost property sector growth despite a slowdown in the Indonesian and global economies. We expect more significant growth to happen in the next three years.

Through what mechanisms will the government’s infrastructure plan impact real estate?

HUSSY: The government’s infrastructure plan is very positive and creates great opportunities for the real estate sector. Transport infrastructure is essential for the long-term development of the country, as it will increase efficiency and reduce costs. If these projects are properly executed, property development will be very positively impacted, as infrastructure development is traditionally followed by the development of property. This will allow for real estate development to be better distributed throughout the country, rather than restricted to big cities like Jakarta or Surabaya. Another aspect that will be improved is the access to and cost of land, as infrastructure development will help add more supply. Nowadays, and especially given the price increases that have occurred in the past couple of years, the cost of land is one of the main challenges for developers.

Should the current loan-to-value (LTV) regulations be revised given real estate prices?

HUSSY: When the government published the LTV regulations in 2013, Bank Indonesia saw increasing property prices in Indonesia. Bank Indonesia was worried there would be a property bubble and introduced LTV rules to avoid it. We agree that the government should intervene to control prices if needed; however, in 2014 property prices decreased.

The LTV was reviewed in 2016, but significant changes were not made. The LTV for a first house increased from 70% to 80%, and the down payment dropped from 30% to 20%. The down payment required for second homes was reduced from 40% to 30%, and from 50% to 40% for third homes. However, other regulations were tightened, including the requirement that an appraiser determine prices.

We hope that in this context Bank Indonesia will publish an amendment to keep property prices from falling further. We therefore hope that, given falling prices, the LTV will be relaxed soon.

How can the participation of international investors be better facilitated in the sector?

HUSSY: All sectors in Indonesia are doing well, including affordable housing, high-end housing, apartments, offices and malls. In Indonesia building development is still far from what is needed. The population is huge, and there is a significant need for residential construction. We understand that Indonesia is an interesting country for foreigner investors, but it is sometimes very difficult for foreigners to purchase property, so the number of interested people coming from abroad to invest in real estate is still low.

The government is now trying to open up the sector to foreign buyers, but regulations are still not competitive enough, especially when compared with neighbouring countries such as Malaysia. Many other countries in the region make it easier for foreigners to invest in real estate. Although there have been improvements in regulations, we are still lagging behind. However, we also need to maintain a balance so not too many foreigners buy here. In order to maintain this balance, the prices should be regulated.