Indonesia Studying Tighter Mortgage-Loan Rules, Warjiyo Says

Bank Indonesia is studying whether to impose stricter loan-to-value rules for mortgages in regions where property demand is expanding too quickly, Deputy Governor Perry Warjiyo said.

The central bank may implement such a plan if the government doesn’t increase the price of subsidized fuel, Warjiyo said in Jakarta today. Higher energy costs would lead to a slowdown in the economy and curb demand for homes, he said. Finance Minister Chatib Basri said May 22 the government plans to raise subsidized fuel prices in June.

“If there’s no fuel-price policy, our choice of instrument will tend to be” loan-to-value ratios, Warjiyo said. Higher fuel costs will lead to “a self-correction in properties so that we can focus more on the interest-rate policy to curb short-term inflation expectation.”

The central bank may tighten the loan-to-value, or LTV, ratios for buyers of second or third properties such as houses and apartments, Warjiyo said.

Southeast Asia’s biggest economy has grown more than 6 percent for 10 straight quarters, boosted by record-low borrowing costs and foreign investment. Bank Indonesia began requiring lenders to demand minimum down-payments for housing and vehicle loans in June last year.

The rule includes setting the LTV ratio for property borrowings at a maximum of 70 percent and the minimum initial payment for motorcycles at 25 percent.

To contact the reporters on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net; Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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