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The need for providing low cost housing in the cities has
been acknowledged, but many stumbling blocks still lie ahead.
As land becomes scarcer, residential areas in the city center are a
privilege reserved for the upper income classes of society. Meanwhile
the masses continue to be further sidelined to the outskirts. This
ongoing trend has created major problems for big cities like Jakarta,
in the form of daily traffic congestion.
Land prices on the outskirts of Jakarta are continuing to rise. Take
the Depok area, for example, where a high end real estate developer in
has been offering land for more than Rp 2 million per square meter,
which is far too expensive for most people in Jakarta, a city with
population density of over 11,000 people per square kilometer and a
regional income per capita of Rp 18 million (as of 2001).
The good thing is that this housing problem has been acknowledged. The
government is planning to provide approximately 1.3 million housing
units all over Indonesia by 2009, of which one million units are
currently still needed. Sixty percent of this will be parsimonious
flats spread across ten big cities in Indonesia -- Jakarta, Bandung,
Surabaya, Semarang, Yogyakarta, Palembang, Medan, Batam, Banjarmasin
and Makassar.
But in spite of this, many hurdles still lie ahead, involving aspects
such as financing, incentives for developers as well as supervision.
The total funding needed for this whole project is estimated at around
Rp 50 trillion (US$5.4 billion).
Uncertainties still prevail in this regard. A portion may be borrowed
from the Islamic Development Bank, while local banks such as Bank
Tabungan Negara (which specializes in mortgage loans) may also
participate. The government may also have to directly take some of the
burden. All in all, there is yet to be a very clear picture on who will
shoulder how much.
The private sector obviously has to be involved, but in order to do
this the regulators obviously must provide incentives. Actually a few
incentives have already been considered by the government; for example
an exemption from the 10 percent value added tax (VAT) to reduce costs,
as well as subsidized rates for loans and the exemption of building
construction license fees.
But the developers want to go further, requesting a 50 percent
reduction of land and building taxes if the land on which the flats are
built on belongs to the government.
So far those incentives are still under discussion by the regulating
body. Out of all, the VAT exemption scheme would most likely be
approved. However the REI, an association of Indonesian real estate
developers, says that this single incentive alone will not be
sufficient to attract developers.
Furthermore, as the flats are aimed at the middle to lower income
brackets (Rp 2.5 - Rp 6 million per month), unit prices are integral to
the success of the housing program. Prices are estimated at around Rp
150 million for a 30 to 36 square meter unit. Assuming a 15 percent
interest rate and a 15 year period on mortgages, this would translate
to monthly installments in the region of Rp 1.7 million.
This amount seems significant for the target market, especially for
households with incomes below Rp 5 million (since the installment would
represent over one third of their incomes). Thus to cater for
households with incomes below that figure, subsidies may be needed.
However, this may lead to further problems of people underreporting
their incomes!
So the road ahead for the government's housing plan is still subject to
many challenges. Much still needs to be further improved in terms of
financing, incentives and supervision. At this juncture, how quick the
program would proceed is not yet clear, what's more obvious is the
necessity.
Disclaimer: This article should not be taken as any recommendation by
PT Bahana Securities to enter into any investment agreement..
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