Impact from Loan-to-Value to Housing Price Bubble in Indonesia and Strategy to Prevent Business Failure
Rudi Purwono, Dessy Kusumawardani, R. Dimas Bagas Herlambang

Faculty of Economics and Business, Universitas Airlangga
Faculty of Economics and Business, Universitas Airlangga
Faculty of Economics and Business, Universitas Airlangga

Abstract

Recent subprime mortgage crisis showing the need of housing price bubble monitoring. Central bank of Indo-nesia, Bank Indonesia (BI), responded the recent crisis by implementing Loan-to-Value (LTV) for housing credit. However, for Indonesia, the research for strategies to prevent business failure regarding the housing price bubble and its outcome is very limited. In this paper, we will estimate the housing bubble in Indonesia to give more perspective in property business strategy. Using information from property price index for Indonesia, we also check whether the LTV policy changes the price bubble condition, hence, change the strategy for the prevention of firms failure. Results from this paper suggest that a misconduct in LTV could lead to a boom in housing price instead of act as a counter-cyclical buffer. However, recent change in LTV is effective in reducing housing price misalignment, therefore should be safe to be responded by firms with optimism in future housing price stability.

Keywords: Housing bubble, Macroeconomy, Business failure, Strategy

Topic: Strategic Management, Entrepreneurship and Contemporary Issues