In order to avert a housing bubble in Indonesia (and avert speculative buying) as well as to slow credit growth in Southeast Asia's largest economy, Bank Indonesia introduced new mortgage regulations in September 2013 and gradually raised the country's benchmark interest rate (BI rate) from 5.75 percent to 7.50 percent in November 2013.

The new mortgage regulations involve an increased mandatory minimum down payment for additional property purchases, aimed to decelerate the mortgage growth rate. Bank Indonesia reduced the loan-to-value (LTV) ratio for the purchase of a second property (measuring over 70 m²) to 60 percent and lowered it to 50 percent for purchases beyond the second property. For first-time home buyers, however, whose property sizes are below 70 m² the regulation does not apply. Lower property sales are expected to lead to reduced property construction and thus less demand for ceramics.

Another concern for Indonesia's domestic ceramic industry is the sharply depreciated rupiah exchange rate. This year so far, the rupiah fell 24.1 percent against the US dollar. This causes a significant rise in ceramic production costs as the gas supply is paid in US dollars (costs of gas account for about 30 percent of total ceramic production costs) but it is difficult for ceramic producers to pass on costs to consumers as ceramic demand has already fallen recently.

Indonesia's Ceramics Industry 2009-2013:

  2011   2012   2013
Revenue (IDR trillion)     13     17     17     24     30¹
Growth YoY (%)    -20     30      0     41     20¹

¹ indicates a forecast
Source: ASAKI