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Housing Finance Market Overview
In Indonesia, housing finance is mainly raised from banks, with the government-owned Bank Tabungan Negara (BTN) taking the largest share of the market. The Indonesian housing finance industry has seen a considerable growth in the last years. The ratio of mortgage debt to GDP has been growing considerably from 2000 to 2007. In 2000, this ratio was only 1.2 per cent and reached in 2007 2.4 per cent, a level that is still below the one before the Asian crisis. Together with house prices that do not show signs of an overheated market, this low level indicates that only a part (according to estimates 20 to 25 per cent) of the total housing demand is financed by the mortgage sector.
The Market from the Perspective of the Demand Side
In Indonesia, the usual maximal loan-to-value ratio amounts to 80 per cent. Yet, for subsidized loans or good risks the limit can be regularly increased to 90 per cent. Adjustable mortgage instruments are the only type of mortgage loans generated in the non-subsidized market. The Indonesian government supports the acquisition/construction of housings with two major subsidy programs. One program intends to provide housing infrastructure and loan guarantees for micro loans for low-income borrowers and the other one subsidises the moderate income mortgage borrower. The latter has two options, an upfront subsidy and a buy-down on interest payments. The market for subsidised mortgages is dominated by BTN.
House Price Development
House prices rose with an annual average growth rate of almost 6 per cent from 2004 till the end of 2008. House prices continued to grow in the first half of 2009. However, this house price increase must be put into the context of a high inflation rate which was on average over 9 per cent in the same span of time. Hence, the real house price increase was negative.
Most funding of bank credit is done through deposit and savings accounts. Funding other than deposit-based funding is limited and expensive, including the issuance of bonds which is undertaken by several banks. In 2005, a secondary mortgage facility, the government-owned PT Sarana Multgriya Finansial, was founded and capitalized though there is no general committed funding line from the government to support its liquidity. Yet, the first mortgage backed securities were not issued before 2009.