A burgeoning middle class is expected to play an important role in consumer lending growth in Indonesia, particularly in the home loans segment. In 2015 PwC reported that the country’s growing middle class has created positive growth potential in consumer banking, particularly mortgage loans, with 56% of the banks it surveyed indicating that mortgage loan growth will be a key driver for consumer loans. Although the central bank, Bank Indonesia (BI), reported that property lending rose by 11.8% year-on-year (y-o-y) in December 2015 to Rp620.4trn ($45.3bn), from 11.5% y-o-y growth in November 2015, largely as a result of construction loans and mortgages, the real estate lending market remains seriously underserved.

Mortgage Uptick

In February 2016 several large state-owned and private banks announced plans to lower mortgage rates in a bid to boost consumer loan growth, following BI’s move to cut the benchmark rate by 25 basis points (bps) to 7.3%. BI followed this with another 25 bps rate cut in March 2016, bringing the benchmark rate to 6.8%.

Bank Negara Indonesia, for example, will offer a fixed five-year lending rate for mortgages at 8.7% for the first two years and 10.7% over the following three years, until the end of June 2016, noting it hoped to see mortgage growth reach 10-12% in 2016. Bank Mandiri also launched a mortgage deal between February and April 2016, offering fixed-rate mortgages of 9.3% and 9.8% for three-and five-year tenors, respectively. The bank is hoping to hit 5-6% growth in its mortgage portfolio in 2016, up from 2.1% in 2015. Bank Tabungan Negara (BTN), the country’s largest mortgage lender, announced it will offer a 6.6% mortgage rate during a property exposition it hosted in February 2016. The bank said it would lower its lending rate for new mortgage applications to 9.6% in the hopes of reaching loan growth of 18-20% in 2016.

Private lenders including Bank Central Asia (BCA) and CIMB Niaga are also planning to lower lending rates. BCA will offer a 0.5% discount rate for mortgage customers holding funds worth more than three times their proposed monthly mortgage payment in their savings accounts.

Foreign Ownership 

On January 1, 2016 Indonesia’s cabinet secretary announced that President Joko Widodo had signed a government regulation the previous month which will allow foreigners to own landed houses in the country for up to 80 years. The regulation, which was designed by the government to provide greater legal certainty to foreign buyers regarding ownership, is also expected to bolster mortgage growth in what is an under-penetrated market.

The new rules went into effect on December 28, 2015, allowing expatriates to own either a landed house or apartment for an initial period of 30 years, after which ownership can be extended twice, by 20 and 30 years, respectively. However, non-Indonesians will only be eligible to own houses if they live and work in the country, and must hold a valid residence permit, which entitles them to ownership under hak pakai (right-of-use regulations).

In February 2016 BTN announced it was planning to launch a specialised mortgage product for foreign buyers within the year. According to Sis Apik Wijayanto, the bank’s retail funding and distribution director, BTN will launch a limited mortgage programme for foreigners who are hoping to buy apartments, with plans to apply a commercial rate for foreign mortgage holders rather than the interest rate for public housing loans.

BTN’s commercial rates currently fluctuate between 12% and 12.5% for loans with a one-year tenor, with the goal of providing mortgages to middle- and high-income foreigners. The bank saw its disbursed loans increase by 19.8% in 2015.