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🇮🇩 Indonesia /Elections & Politics

Indef: 40-Year Subsidized Mortgage Tenor Needs Borrower Selection to Match Risk

From Republika · () Indonesian

Translated from Indonesian, summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • Indonesia's Indef think tank supports extending mortgage tenors to 40 years to improve housing access for low-income citizens.
  • The extended repayment period would lower monthly installments, making homeownership more attainable for low-income groups.
  • Indef warns that this policy must be paired with strict borrower selection to prevent a rise in non-performing loans, citing the 2008 US subprime mortgage crisis as a cautionary tale.

Indonesia's Institute for Development of Economics and Finance (Indef) has voiced support for extending the tenor of subsidized housing loans, known as Kredit Pemilikan Rumah (KPR) subsidi, to 40 years. This policy aims to significantly broaden access to homeownership for low-income communities (MBR).

MBR can get a 40-year tenor if they are still in their productive age when they receive this benefit.

— Esther Sri AstutiEsther Sri Astuti, Executive Director of Indef, explains the condition under which low-income citizens could benefit from the extended mortgage tenor.

Esther Sri Astuti, Executive Director of Indef, explained that a longer repayment period directly translates to lower monthly installments. This reduction makes homeownership a more feasible prospect for individuals and families with limited financial means. "MBR can get a 40-year tenor if they are still in their productive age when they receive this benefit," Esther told Antara news agency.

However, Indef emphasizes that the extended tenor must be accompanied by rigorous borrower selection processes. Banks are still required to conduct thorough creditworthiness assessments, focusing on a borrower's ability to repay over the extended loan term. Esther pointed to the 2008 US subprime mortgage crisis as a stark warning against lax lending standards. That crisis, she noted, was partly fueled by relaxed credit criteria, leading to high-risk borrowers defaulting when interest rates rose and property values fell, triggering a global financial crisis.

The KPR crisis in the United States in 2008 can be an important lesson for Indonesia.

— Esther Sri AstutiEsther Sri Astuti draws a parallel to the 2008 US subprime mortgage crisis to highlight the potential risks of expanding housing finance access without proper safeguards.

"The KPR crisis in the United States in 2008 can be an important lesson for Indonesia," Esther stated. She urged that the 40-year tenor policy must uphold prudent banking principles. Expanding access to financing should not compromise loan quality. "Prudent principles must be maintained so that installments are in line with the borrower's ability and the housing financing program runs sustainably," she concluded.

Prudent principles must be maintained so that installments are in line with the borrower's ability and the housing financing program runs sustainably.

— Esther Sri AstutiEsther Sri Astuti emphasizes the need for cautious lending practices to ensure the long-term viability of housing finance programs.
DistantNews Editorial

Originally published by Republika in Indonesian. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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