Be Careful in Dealing with KPR

The public needs to develop strategies to deal with potential increases in home ownership credit interest rates.

KOMPAS/AGUS SUSANTO

The growth of landed houses in Kedungwaringin, Bekasi Regency, West Java, continues on Friday (12/9/2022). The 25 basis points increase of Bank Indonesia's (BI) benchmark interest rate to 6.25 percent at the end of April 2024 will have an impact on the increase of housing loan interest rates (KPR).

The increase in Bank Indonesia's benchmark interest rate has raised concerns that it will have an impact on increasing home ownership credit interest rates. In the midst of economic turbulence, the increase in interest rates on home ownership loans not only increases the burden on people's installment costs, but also triggers a weakening of the property market.

The majority of people currently use home ownership credit (KPR) or apartment ownership credit (KPA) schemes for housing financing. The Bank Indonesia Residential Property Price Survey (SHPR), as of Quarter IV-2023, shows that the main financing scheme for purchasing a primary home is through KPR, which is 75.89 percent of the total financing.

Bank Indonesia's move to raise its benchmark interest rate or BI Rate by 25 basis points, from 6 percent to 6.25 percent in April 2024, is believed by some analysts to have no short-term impact in the next 3-6 months. However, if BI's move is followed by banks raising their loan interest rates, it is predicted to lower the interest in buying homes as the cost of purchasing and property installments will be higher.

The housing property platforms, Rumah123.com and 99.co, have noted the correlation between the movement of BI Rate and the growth of KPR/KPA. When the benchmark interest rate drops, there is a surge in annual growth of KPR/KPA distribution. Conversely, when the benchmark interest rate increases, credit growth slows down.

Also read: BI Rate Increases to 6.25 Percent, Real Sector Needs Anticipation

Historical trends show that there is a 6-12 month lag after the reference interest rate increases, there is an increase in KPR interest rates/KPA. The increase in credit interest rates was followed by loan growth which tended to slow down. Changes in mortgage interest rates affect all segments of the residential market.

"The impact of the increase in benchmark interest rates on the increase in home loan interest rates needs to be anticipated in the coming months to ensure that the demand for property from the community remains sustained," said Mariska Jaya, Head of Research at Rumah123, some time ago.

KOMPAS/HENDRA A SETYAWAN

Workers completed the construction of a subsidized housing project in Rabak area, Bogor, West Java, on Sunday (22/1/2023). The increase of Bank Indonesia's benchmark interest rate by 25 basis points to 6.25 percent at the end of April 2024 will have an impact on the increase of housing loan interest rates (KPR).

Be more observant

Mariska added that amidst the challenges of an uncertain economic condition, the presence of incentive policies from the government, as well as promotional programs for property purchases by developers and banks, are considered sufficient in maintaining the demand for properties.

The community is also expected to be wiser in financial planning when buying properties, as well as being more careful in comparing mortgage programs from various banks. Furthermore, they should also make use of incentives from the government and promotions from developers so that their house installments remain affordable.

For people who are paying off their mortgage in installments and facing an increase in floating interest rates(floating rate), the mortgage transfer program could be an option. Transferring your mortgage to another bank (take over)which offers a mortgage interest rate promo will ease the installment burden. However, transferring a mortgage to another bank also incurs costs such as the initial mortgage application.

The bank approved the adjustment to the increase in mortgage interest rates with a win-win solution.

Ayunita (37), a resident of Bogor, said that she has experienced three times of interest rate hikes on her home mortgage loan over 13 years as a customer of a private bank. To the increase of the mortgage interest rate, Ayunita always requests a reduction in installments from the bank. The bank has approved her request for installment reduction three times.

KOMPAS/AGUS SUSANTO

Workers complete housing construction in Kebalen Village, Babelan District, Bekasi Regency, West Java, on Tuesday (1/18/2022). The trend of economic growth will drive the property market to become more active. The residential market is not only aimed at fulfilling housing needs, but also as an investment instrument.

He gave an example, when the KPR interest rate increased and the monthly installments increased from Rp 2.2 million to Rp 2.4 million, the bank agreed to reduce the installments to Rp 2.3 million per month. When the KPR interest rate rose again and the installment amount increased to Rp 2.7 million per month, he asked for relief so that the monthly installment was reduced toRp 2.5 million. Similarly, when the KPR installment increased again toRp 2.8 million per month, he successfully negotiated with the bank to reduce the installment to Rp 2.5 million per month.

"I ask that mortgage interest rates not be increased. If it continues to rise, I will be forced to move my mortgage to another bank. "Finally, the bank agreed to adjust the increase in mortgage interest rates with a win-win solution," said Ayunita, who bought a house in Bukit Cimanggu City, Bogor City.

Currently, Ayunita still has a remaining KPR tenure for the next two years. She hopes that there will be no more increase in KPR interest rates that will burden her during the remaining credit period.

Also read: Weakening Property Purchasing Power Needs to Be Anticipated

It's different with Christian Hani. For the last three years he has received a fixed rate KPR promotion of 6.5 percent at a private bank, he was then hit by an increase in the KPR interest rate to 13.5 percent. The installment amount has almost doubled, from IDR 4 million per month to IDR 7.2 million per month.

Hani stated that the spike in mortgage interest rates is putting a lot of burden on her, so she applied for installment relief from the bank. However, the bank did not respond. Finally, she decided to move her mortgage to another private bank that offered a fixed interest rate promotion for mortgages.

The KPR promo interest rate offer was rolled out by a number of private banks and state-owned banks. He is currently calculating the promotions that are most relevant to his financial condition and repayment plans. However, it is acknowledged that transferring KPR takes time, in addition to being prepared for appraisal costs and a number of other requirements that must be met.

"The transfer of mortgage loans to another bank is a way out rather than persisting with a bank that increases mortgage interest rates that are very burdensome without any negotiation room. This has made me reluctant to take out a mortgage," said Hani, who still has approximately Rp 500 million in remaining credit.

KOMPAS/HERU SRI KUMORO

The construction of houses in the Helios Prime cluster in Suvarna Sutera, Cikupa, Tangerang Regency, Banten, was carried out on Monday (8/1/2024). The Helios Prime homes offer classic European-style two-story residences. Residents who work in West Jakarta and Tangerang are the main target market for housing in Suvarna Sutera.

Interrelated

Previously, the Executive Director of Indonesia Property Watch (IPW), Ali Tranghanda, stated that the increase in the benchmark interest rate followed by an increase in the credit interest rate would decrease the purchasing power of the community. Based on IPW's calculations, every 1 percent increase in the home loan interest rate would decrease market demand by 4-5 percent. The housing market will be held back, especially in the middle to lower segments.

"The market decline is more pronounced in the lower middle price segment below IDR 1 billion," said Ali, some time ago.

According to Ali, the uncertainty in global and world geopolitics also needs to be anticipated because it can weaken the economy and trigger inflation, including the inflation of building materials. Incentive policies are necessary, as well as government efforts to maintain economic growth.

Also read: Subsidized Housing Quota Predicted to Run Out Soon

Mariska argues that a number of policy instruments and incentives are needed to encourage property affordability amidst the market slowdown. Incentive schemes in the form of a loan-to-value (LTV) ratio of 100 percent and government-borne value added tax (VAT) are considered to play a significant role in driving the property market.

KOMPAS/PRIYOMBODO

A row of two-story terrace houses being constructed in the Alam Sutera area of Pinang, Tangerang City, Banten on Tuesday (December 13, 2022). The 25 basis point increase in Bank Indonesia's benchmark interest rate to 6.25 percent by the end of April 2024 will have an impact on the increase of home ownership loan interest rates (KPR).

As an example, when the government announced the exemption of Value-Added Tax in October 2023, property searches through the platform Rumah123.com experienced a surge of 77.9 percent compared to the previous year. The ongoing Value-Added Tax exemption is an opportunity to own a house with reduced costs.

"It is hoped that the property incentive policy can be maintained, of course supported by the joint efforts of stakeholders, such as developers, banks and property markets to provide programs that maintain people's convenience or interest in buying housing," said Mariska.

The Vice Chairman of the Central Executive Board of the Real Estate Indonesia (REI), Bambang Ekajaya, revealed that the rise in mortgage interest rates burdens both consumer credit installments and developers. This increase often eliminates and discourages potential consumers.

It is hoped that the reach of subsidized mortgages will be expanded to help consumers.

Even so, developers cannot immediately pass on the impact of the increase in home loan interest rates to consumers. Developers are the first party responsible for providing convenience for prospective consumers to be able to pay off their homes, for example, by providing subsidized interest rates for the first year of the home loan.

"We tighten our belt to remain competitive in selling prices and if necessary, we will provide interest rate subsidies for home loans," said Bambang some time ago.

On the other hand, subsidized KPR is an instrument to help affordability of housing. KPR subsidies through the housing financing liquidity facility (FLPP) with a fixed interest rate of 5 percent per year help low-income people to complete their obligations until the credit tenor is completed. On the other hand, low-income people with an income limit slightly above low-income people are considered more vulnerable to increases in mortgage interest rates.

"It is hoped that the reach of subsidized mortgages will be expanded to help consumers," he said.