Capital flows, macro prudential policy, and property sector: Indonesian Case in the Aftermath of Asian Crisis

Capital flows to emerging economies in the world have increased significantly since the 2000s. After the 2008 global financial crisis, the monetary easing in advanced economies and some expectation on their exits have been giving a great influence on capital inflows towards emerging markets including Indonesia. Capital inflows could have significant effect to asset prices, including property prices. The global financial crisis also rising the importance of macroprudential policies. The paper has the objective to test the impact of capital flows to property market and also the effect of macroprudential policies represented by Loan To Value (LTV) regulation to property market in Indonesia. Simple regression analysis using quarterly data (2002-2014) showed the co-movement between property prices and capital flows. But in complete models, capital flows tend to be not significantly influence property prices. The regression using quarterly data (2002-2014) still not succeed in capturing the impact of LTV regulation to property prices, but LTV has significant impact to credit growth in property sector. LTV could moderate the credit growth in period of observation (2006-2014).