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Soaring rates put house beyond reach

Straits Times - November 4, 1997

Jakarta – Early this year, 31-year-old Bimo, who works in the private sector, and his wife decided to buy a house where they could raise their newborn daughter.

The couple was set to obtain a housing loan to buy a medium-sized house in Jakarta's suburbs. Their plan was going smoothly until August.

Their hopes were torn asunder. The rupiah's value has dropped by over 35 per cent against the US dollar since July, causing the government to impose a tight money policy and credit crunch. Money became scarce and interest rates shot up almost overnight.

The couple now realises that getting a loan would be unwise – and unaffordable.

"I'll have to forget about buying a house for a while, because there is no way we could afford paying back the loan now," Mr Bimo was quoted as saying in The Jakarta Post on Sunday.

The newspaper said many others shared Mr Bimo's bleak position, forced to postpone the best-laid plans as the crisis took a chunk out of their incomes. No house, so wedding will have to wait. Mr Herman Tjahja, 28, has had to put off his marriage because soaring interest rates shattered his dream to buy a house in Bekasi, a township east of Jakarta.

Mr Herman was told before the crisis that he could buy the house for 80 million rupiah (S$36,800), with a 21 per cent interest rate. That translated into paying around 1.6 million rupiah every month.

The plan was dashed when the interest rate surged to 40 per cent, raising the monthly payment to about 2.8 million rupiah.

"That's crazy, I can't possibly afford it right now," he says. "My salary is small and it does not look as if I will get a pay rise." The newspaper said people were prevented from getting a home by the "skinning of the property sector".

There were fears of a property crash around the corner.

Several houses and plots in the Bintaro suburb in South Jakarta had been marked down to less than 50 per cent of their usual prices and many buyers were financially overextended.