Despite various incentives and programmes being offered to boost development of low income mass housing, the Indonesian housing sector is still unable to keep pace with the growing population and demand. Indonesia needs around 400,000 new homes every year in addition to the massive housing backlog of 13.5 million units. Without a significant breakthrough, many fear that Indonesian millenials will not be able to afford to buy in urban centres. This is a significant issue as Indonesia seeks to harness the economic might of its young and productive population. Property ownership is a key component of securing the sustainability of middle-class growth and long-term economic viability.
Infrastructure development (See High Stakes for Indonesia's New Infrastructure Push), including housing, has been one of the key priorities of the Joko Widodo administration. That is why, the Indonesian government has been keen to introduce various policies and programmes to spur the growth of the mass housing sector.
Not long after he took office in 2014, President Jokowi launched the ‘one million homes’ programme. Under this initiative, the Indonesian government is determined to build one million units of accommodations every year until its term ends in 2019 (See Residential Property: Indonesian Market Remains Attractive Despite Slowdown). Unfortunately, due constraints on the state budget (See Indonesia’s Economic Outlook in 2017: Remain Cautiously Optimistic), the implementation of this programme has missed its target in the last two years. In 2015, for instance, only 699,770 homes were constructed. A year later, in 2016, the number of newly built homes increased to 805,169 units; but still fell short of its initial target.
Of this number, the Directorate General of Housing Provision of the Ministry of Public Works and Public Housing constructed 111,796 units for low-income residents, which comprised of rental flats making up 7,860 units, special homes of 6,048 units, and home improvement assistance for 97,888 units.
Other ministries/institutions constructed 16,923 units, local government's 120,180 units, housing developers 265,747 units, and other financing schemes accounted for 21,830 units in addition to CSR activities for 20 units and 35,586 units by the public.
Meanwhile, housing development for the Indonesian middle and upper-class segment in 2016 reached 235,787 units, which consisted of homes developed by private developers totalling 12,332 units, middle and upper-class residents equating to 10,000 units, non-subsidised commercial homes 80,235 units, non-subsidised shariah compliant homes 3,972 units, and home construction loans for 129,248 units.
In 2017, the Directorate General of Housing Provision received 15.6 trillion IDR in housing subsidies. The budget will be allocated for the Subsidised Mortgage Liquidity Facility (FLPP) scheme of 9.7 trillion IDR, up from 9.2 trillion IDR in 2016, Interest Rate Buy-Down Subsidy for Mortgage (SSB) scheme of 2.2 trillion IDR, and Down Payment Assistance Loan (BUM) scheme of 2.2 trillion, up 1 trillion IDR compared with that in 2016 which amounted to 1.2 trillion. Moreover, the government plans to provide home ownership loans (KPR) for 375,000 units under the FLPP scheme, 225,000 units under the SSB scheme, and 550,000 units under the BUM scheme.
A synergy between the government as the policymaker, private and state developers, landowners, and financial institutions is indispensable in boosting Indonesia’s rate of mass housing development. Bank Indonesia, for example, has provided a facility in the form of LTV (loan-to-value) and FTV (financing-to-value) for buying a home (See Spurring Indonesia’s Property Sector through Lower Down Payment Requirements). Bank Tabungan Negara (BTN), one of the largest providers of home ownership loans, plans to launch micro KPR in 2017. In addition, the bank will also partner with seven state-owned enterprises, including Perumnas and BPJS Ketenagakerjaan, to reduce the housing backlog in the country.
BPJS has been offering down payment and home improvement loans to its members for some time now by allowing them to withdraw 30% of their pension savings. By partnering with BTN, BPJS is now able to offer three types of housing loans to 20,000 of its members. They are down payment loans, home ownership loan, and home improvement loans. The agency will provide a reference letter to the bank which will in turn assess the members’ credit worthiness and provide a loan if they meet the requirements.
State housing company, Perumnas, plans to double its mass housing developments in 2017 by launching a number of strategic projects which include the construction of transit-oriented development (TOD) flats, revitalising old flats, creating synergies with other state-owned enterprises, the Jakarta provincial government, and the Ministry of Public Works and Public Housing.
Moreover, Perumnas will partner with the state railway company (KAI) to construct low-cost flats in commuter line stations using a TOD concept (See Indonesia’s Railways; Just the Ticket to Improve Logistics). During the initial phase, the company will construct 4,980 flats in Bogor, Pondok Cina, and Tanjung Barat train stations with a total investment of 2 trillion IDR
In Tanjung Barat station, Perumnas will construct two towers which will host 860 flats with a total area of 1 hectare. In Pondok Cina station, the company will construct two towers consisting of 520 units occupying a total area of 6,000 metres. Meanwhile, in Bogor station, Perumnas will construct six towers comprising of 3,600 flats with a total area of 4.2 hectares.
This landmark project was inspired by a similar programme in Hong Kong and is considered suitable for dense urban areas with heavy traffic. Perumnas and KAI have signed a memorandum of understanding on integrated area development based on the TOD concept.
The railway station will occupy the ground floor, while the first two floors will be used for commercial facilities (See Indonesia’s Commercial Property Sector in Temporary Slowdown) and the flats will be constructed on top of it. The project is expected to start in the second quarter of 2017. Going forward, Perumnas will survey 80 other commuter line stations to find more potential sites for the TOD concept.
Meanwhile, the flat revitalisation projects will be carried out in several locations, such as Sukaramai in Medan, Ilir Barat in Palembang, and Kebon Kacang, Tanah Abang, Klender, and Cengkareng in Jakarta with a total of 23,250 flats. Perumnas has also signed a partnership agreement with another state-owned enterprise, Pertani, to construct 5,000 units and received an assignment to build a low-cost apartment on the land belonging to the Ministry of Public Works and Public Housing with a total area of 10 hectares.
The company will construct 7,100 flats near toll roads for low-income residents. The ministry is still awaiting the issuance of a presidential regulation to implement Government Regulation No. 83/2015.
This cooperation will be based on the public-private partnership (PPP) scheme as stipulated in the Presidential Regulation No. 38/2015 on Public Private Partnerships in Infrastructure Provision (See Indonesian Infrastructure: Tremendous PPP Opportunities). Article 5 Letter S of the regulation stipulates that public housing is one of the objectives of the partnership.
The ministry plans to develop mass housing that is balanced using the 1:2:3 scheme in several toll roads in Java and Sumatra and proposes to include the housing PPP scheme into the Bappenas green book or the List of Medium-Term Priority External Loans/Grants. The government will prioritise regions with strong commitment to the housing programme to implement the PPP scheme. Nevertheless, the scheme is likely to be tested in 2018 because it may take a year to complete the study.
Meanwhile, in the private sector, the Association of Indonesian House and Residential Developers (Apersi) which has 3,700 members has set a target to construct 100,000 subsidised houses in 2017. This will be a 25% increase compared to the realisation in 2016 of 80,000 units.
One of the major constraints hampering mass housing development in Indonesia, especially in urban areas, is land availability (See Indonesia’s Land Acquisition Laws; On Paper Only?). To address this problem, President Jokowi recently launched an equitable economic policy which is based on three pillars, namely human resources, land, and opportunity.
Under this policy, the government will help the urban poor maintain a residence in the urban areas through asset redistribution and land consolidation with the relevant stakeholders, such as the Directorate General of Housing, state housing company Perumnas, and local governments.
Moreover, the Indonesian government also plans to impose a progressive tax on unused land, capital gains tax on sales and purchase of land, and unutilised asset tax to discourage land grabbing practices and to ensure an equal distribution of land. According to Jokowi, land ownership inequality is a major issue that needs to be resolved by the government through an equitable tax system and agrarian reform.
Other major contraints inhibiting the growth of the mass housing industry is the lack of financing for low-cost housing projects. The contribution of the banking sector to the FLPP programme is still around 10% (See Indonesia’s Banking Sector; Under Pressure But Staying Strong). The government plans to increase the involvement of the private sector in the programme to 15% in 2017.
To accommodate informal workers who are unable to access home ownership loans due to their high risk, the government is preparing a special scheme dubbed as Saving-based Housing Financing Assistance. The ministerial regulation, general and technical guidance on this programme are currently being prepared. Under this scheme, informal workers will get a discount based on the house price, not in the form of interest rate subsidies as applicable now. This home ownership loan will use a commercial rate and the government’s assistance will be provided upfront.
Another constraint hindering the development of Indonesia’s domestic mass housing industry is red tape and overlapping regulations. Apersi, for example, complained about the lack of support from the local government. Many housing projects are hampered by the delay in the provision of supporting infrastructure such as electricity, water, and road access. Moreover, local permits and illegal fees which can inflate the house price by up to 20% also remain an issue.
To boost the country’s housing development in 2017, the Indonesian government has prepared a number of policies. These include drafting a government regulation on housing for low-income residents based on the 13th economic policy package, implementing a modular system to reduce costs, and more recently launching an equitable economic policy of which land-based policy serves as one of its pillars.
The government also plans to establish a state housing holding company to leverage the capability of state-owned enterprises in the housing sector. To pave the way for its formation, the government has issued Government Regulation No. 83/2015 on National Housing Development Enterprise (Perumnas).
The holding company will serve as a buyer of houses and flats developed by state and private developers. The company will also be allowed to manage a land bank to provide housing for low-income residents.
Vertical housing will become a priority because it can accommodate more units than landed housing. Two potential sites to be included in the company’s landbank are a 4-hectare land plot in Kemayoran, Jakarta and a disputed land in Saidan, Yogyakarta.
Overall, investment opportunities in the housing sector are still promising given the backlog and the government’s determination to boost the rate of housing development. Going forward, vertical housing development will be more dominant in urban areas. However, landed houses will still have their own market, especially in the secondary cities.
Other attractive investment opportunities are in the building materials sector which is expected to grow in-line with the increase in housing development projects over the next few years (See Indonesia’s Construction & Building Materials Sector On the Up & Up). In addition, the government’s plan to implement a modular system to reduce costs and improve efficiency will offer a golden opportunity for precast concrete manufacturers (See Construction Firms Find Strong Growth in Indonesia) and other manufacturers in the modular construction related sectors.
Global Business Guide Indonesia - 2017
Contribution to GDP: 2.79% (Q3 2015)
Mortgage to GDP Ratio: 3.5% (2015)
Housing Backlog: 15 million (estimated 2016)
Average Condominium Price: 48,100,000 IDR/sqm (CBD, Jakarta, Q3 2015)
Average Retail Space Rental Price: 500,00 IDR/sqm/month (CBD, Jakarta, Q1 2016), 545,968 IDR IDR/sqm/month (Jakarta, 2016)
Average Office Space Rental Price: 401,010 IDR/sqm/month (CBD, Jakarta, Q1 2016)
Average Industrial Land Price : $221.51 USD/sqm (Bekasi, Q1 2016), $144.16 USD/sqm (Tangerang, Q1 2016)
Relevant Law: Government Regulation No. 41 of 1996 on Housing or Residential Ownership for Foreign Citizens Based in Indonesia allows foreigners to own leaseholds of up to 70 years subject to renewals at 25, 20 and 25 year intervals.