BI Interest Rate Increase Affected Property Sector


The property sector managed to survive after being hit by a pandemic for 2 years. Now, as the property business begins to grow, new hurdles arise. The increase in the Bank Indonesia 7 Days Reverse Repo Rate (BI7DRRR) benchmark interest rate will have an impact on homeownership loan interest.

Previously, the benchmark Bank Indonesia 7 Days Reverse Repo Rate (BI7DRRR) rose by 50 basis points (bps) to 4.25 percent, with the deposit facility rate rising to 3.5 percent and the lending facility rate to 5 percent.

BI has also raised the benchmark interest rate by 25 bps to 3.75 percent in August 2022. The increase was the first since November 2018 or in 44 months.

The increase in BI interest rates is projected to have an impact on increasing bank lending rates and property sector, especially for Home Ownership Loans (KPR) and Apartment Ownership Loans (KPA). This increase in credit makes it difficult for the millennial generation to get a new home.

In addition, this will also have an impact on increasing the amount of monthly residential installments that must be paid by consumers.

The reason is, in the Residential Property Price Survey (SHPR) issued by Bank Indonesia, the majority of residential property purchases are made through mortgage financing schemes with a share of 74.97 percent of total financing, followed by cash in stages 16.61 percent and in cash 8.42 percent.

In the second quarter of 2022, the growth in the total value of KPR and KPA loans on an annual basis slowed by 7.07 percent (YoY), lower than 10.61 percent (YoY) in the previous quarter.

Meanwhile, the distribution of KPR and KPA quarterly was observed to have negative growth of -0.62 percent (QoQ), contracted from the previous quarter’s growth of 2.20 percent (QoQ).

The sales of landed house properties grew positively by 15.23 percent (year on year/yoy) in the second quarter of 2022 after contracting in the previous quarter by -10.11 percent (YoY).

The improvement in the development of landed house sales in the second quarter of 2022 was driven by the improvement in sales of all types of houses, especially the large type, which grew by 29.86 percent (YoY).

In addition, the increase in sales of small house types was recorded at 14.44 percent (YoY) from the first quarter of 2022 which contracted by -8.27 percent (YoY). Then sales of medium-sized houses were recorded at 12.25 percent (YoY) from the previous quarter which contracted to -18.28 percent (YoY).

The non-optimal sales of landed house properties are caused by several factors, including rising building material prices, licensing/bureaucratic problems, mortgage interest rates, a high proportion of down payments in mortgage applications, and taxation.

Then the Residential Property Price Index (IHPR) in the primary market on an annual basis increased limited in the second quarter of 2022 to 1.72 percent (YoY), a relatively slight decrease compared to 1.77 percent (YoY) in the previous quarter.

According to Bank Indonesia, the rising inflation for building materials has not yet been fully transmitted to the annual increase in the residential property price index.