Jalan2Economic: Bahana - Impact of Higher Down Payments on Auto and Property Market

Article at The Jakarta Post today
By Leonardo and Natalia Sutanto - Bahana Securities Analysts

We recently attended a 1-day conference on the effects of higher down payments (DPs) conducted by APPI, the Indonesian Association of Multi Finance Companies.  The panelists mainly discussed the outlook of the government’s higher DP policy on both the auto and property sectors upon its planned implementation on 15 June 2012.  We note that both the central bank (BI) and the Capital Market & Financial Institution Supervisory Agency (Bapepam-LK) insist that the policy is needed to prevent potential bubble in mortgage and automotive loans.

On the car (4W) segment, with current market DPs of higher than 20 percent (exhibit 1), car sales to middle-up income earners will be more resilient.  Nevertheless, Gaikindo, the car (4W) distributors association, now expects 2012 car sales to come down to 820,000 (contracted 8 percent year-on-year) from 940,000 units (increased 5 percent year-on-year).  On motorcycles (2W), with current market DPs of 5 to 30 percent, AISI, the motorcycle (2W) distributors association, expects the new policy to decrease 2012 2W sales by 30 percent year-on-year.  However, we believe predictions by the associations are more political in nature, in an effort to push policy makers to amend the DP policy.  Our view is partly based on the fact that Bapepam-LK has received new permit applications from 43 new multi finance companies (exhibit 2), post its policy on higher DPs.  Thus, we still maintain our 2012 4W sales to reach 1 million units, up 12 percent year-on-year and 2W sales to reach 8.2 million units, up 2 percent year-on-year.

On the property side, most speakers share our view of a temporary slow down on housing products priced at IDR100m to IDR450m/ unit on higher Loan to Value (LTV) implementation starting 15 June 2012.  However, middle to middle-up property market (>IDR500m/unit) will experience minimal impact backed by growing purchasing power that will continue to support demand. One of the speakers (from BCA) explained that in the short-term, sub-prime mortgage will not occur in Indonesia as most property buyers are currently still end-users or investors, who either have the capability to pay installments or use their own funds for property purchases.  This is different with the US sub-prime problem with banks having offered zero down payments on housing to unqualified buyers. In sum, we share the same view with the speakers that the central bank’s move to increase LTV for property buyers will create more prudent transactions and prevent potential bubble and sub-prime mortgage from forming within Indonesia’s property market.

On the back of the upcoming DP policy, we retain our NEUTRAL stance on the auto sector.  While on the property side, our property counters, which focus on middle to middle-up market, will continue to book strong earnings through 2013, helped by buoyant 2010-2012 marketing sales (exhibit 3).