Source: Bloomberg

According to Bloomberg, Indonesia’s most aggressive monetary tightening since 2005 is set to slow economic growth without denting soaring property demand in the world’s fourth-most populous nation.

A young population, elevated inflation and property-price gains that outpace interest rates are spurring real-estate sales from Jakarta to Manado. Home prices in the third quarter probably rose 14.6 percent from a year earlier, according to a Bank Indonesia survey, while the Indonesian Real Estate Association predicts housing sales will climb more than 50 percent this year.

“Indonesia has a huge population, that’s a potential market for us,” said Setyo Maharso, chairman of the Indonesian real estate association, which predicts 2013 property sales will rise to 400,000 units from 260,000 last year. “For our buyers, as long as they have the ability to pay monthly installments, sales will keep increasing till the year end.”

With foreigners restricted from owning property in SoutheastAsia’s biggest economy, Indonesia is confronting a surge in local demand rather than the capital inflows that spurred record home prices in neighboring Singapore and Hong Kong. After the central bank imposed stricter loan-to-value ratios for mortgages, persistent price gains may prompt the government to raise some real-estate taxes, PT Bank Danamon Indonesia said.

“By giving a luxury tax, especially for high-end properties, it would help to curb home-price increases,” said Anton Gunawan, chief economist at Bank Danamon who was a candidate for the No. 2 job at the central bank this year. “Returns from property remain high as there’s an expectation that home prices are still rising.”

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