Property Demand in 2023 is Projected to Slow Due to Mortgage Interest Increase


Property demand in 2023 is projected to slow down as a result of mortgage interest rates, which are predicted to rise soon.

The prediction of the mortgage interest rate increase is due to the increase in the benchmark interest rate from Bank Indonesia (BI).

Core Indonesia Executive Director Mohammad Faisal said that currently, banks are still holding back on increasing loan interest rates to maintain people’s purchasing power. However, sooner or later, banks will adjust interest rates and the impact will be felt on demand.

“Property demand loan is likely to slow down in 2023,” said Faisal, Monday (31/10/2022).

Moreover, the economist predicts that in the future Bank Indonesia (BI) will raise its benchmark interest rate again. As of October 2023, the BI benchmark interest rate is 4.75 percent.

In this case, banks will be encouraged to participate in raising mortgage rates. Another impact is that the crediting process will be more selective because it considers demand and avoids bad loans.

“Sooner or later I think it will increase because this is also related to the level of profit or margin obtained by banks,” he said.

Head of Research Colliers Indonesia Ferry Salanto said the increase in mortgage interest rates would certainly affect the performance of the property business in the country. Therefore, he considered the need for a stimulus to maintain demand for home purchases.

Previously, until September 2022, property sales were driven by the Government Borne Value Added Tax (PPN DTP) incentive. However, the incentive has expired, and there is no signal of continuation until now.

“If there is no strong stimulus such as VAT on DTP until the end of last September, it will be difficult for the next years because the attraction is no longer there for consumers,” he said.

Furthermore, Property Observer and CEO of Indonesia Property Watch, Ali Tranghanda, said that banks will respond to the increase in BI’s benchmark interest rate by increasing loan interest so that the number of installments to be paid by debtors will increase to Rp. 300,000 per month.

“The increase in interest will increase the installments of Rp. 150,000-300,000 per month, it can be relatively high or not depending on purchasing power,” he said, quoted Tuesday (25/10/2022).

For information, BI has raised its benchmark interest rate three times throughout 2022, with a total increase of 125 basis points to 4.75 percent. This upward trend is likely to continue from the end of this year until next year.