Moody's Investors Service says that demand recovery will be uneven across Indonesian property segments, although cash flow is expected to broadly improve from low levels in 2020 - Photo: Special

JAKARTA (TheInsiderStories) – Residential Property Price Index (RPPI) in the primary market lowered in the third quarter (3Q) of 2018, said Bank Indonesia (BI) today (09/11). The index recorded 0.42 percent in the 3Q of 2018 from the previous quarter 0.76 percent.

In 4Q, the house prices are expected to start increasing by 0.52 percent (QoQ), mainly due to increases in prices of building materials and labor costs.

Slowing residential property prices are sourced from small and medium-sized housing types. The price of small type houses slowed from 1.35 percent on the quarter to quarter basis (QoQ) in 3Q of 2017 to 0.69 percent in 3Q 2018. The retardation also occurred in the middle housing type, which was from 0.68 percent (QoQ) to 0.26 percent (QoQ).

In 3Q, residential property sales decreased by -14.14 percent, lowered than -0.08 percent in the previous quarter. The decline in residential property sales occurred in all types of houses, mainly due to declining consumer demand, limited housing offers from developers, and high interest rates on mortgage loans.

The decline in sales occurred in all types of houses, such as the type of small house -15.92 percent (QoQ), middle type houses -11.14 percent (QoQ), and large types of houses -11.11 percent (QoQ).

The survey results indicate that internal funds still have a large portion in financing residential property development. This was reflected in the share of developer internal funds which reached 55.73 percent. Meanwhile, the source of consumer financing in buying residential property is still dominated by mortgages at 77.20 percent.

Most respondents thought the main factor of the decline in home sales was due to a decline in consumer demand, limited supply of housing sales from respondents, high mortgage rates and less affordable housing prices for consumers.

Looking ahead, residential property prices in the fourth quarter of 2018 are expected to increase. This is indicated by the estimated IHPR in quarter 3Q-2018 which was 0.52 percent (QoQ), higher than 0.42 percent (QoQ) in the previous quarter. But on an annual basis, residential property prices are expected to slow down, from 3.18 percent compared to last year 3.14 percent.

Regarding property financing, in the third quarter of 2018, the developers used the company’s internal funds the most as 55.73 percent. While financing from bank loans amounted to 33.95 percent and from consumers 8.69 percent.

Meanwhile, for consumer financing, the use of mortgage loans for property purchases reached 77.2 percent in the third quarter of 2018, increased compared to 75.21 percent in the previous period. While 15.12 percent of consumers use home purchases in cash.

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