Home Loans for Informal Workers
.
The government launched its One Million Houses Program in April 2015.The program aimed to stimulate the property sector by reducing the backlog of some 13.5 million houses by 2015.
The program intended to benefit mostly workers in the formal sector. Whatabout housing for people who work in the informal sector? Why is the property sector being prioritized?
The reason is that the program intended to revive the property sector, which would in turn support at least 170 other related businesses. For example, businesses related to architecture, such as suppliers of sand, cement, wood (door frames, window frames, doors, window sashes, rafters), tiles, paint, iron, lightweight steel, bricks and stone, locks, lights, garden materials, electricity, and furniture.
In addition, the property sector is able to absorb thousands of workers to reduce the open unemployment rate, which reached 5.61 percent or 7.03 million people as of August 2016, and 5.33 percent or 7.01 million people as of February 2017.
To that end, the government offers mortgages (KPR) for low-income households (MBR) through theHousing Finance Liquidity Facility (FLPP). The KPR-FLPP is very attractive with a down payment of only 1 percent, offering small house mortgages for low-income households with a maximum income of Rp 4 million and low-cost apartment mortgages for households with a maximum income of Rp 7 million. The loans, ranging from Rp 25 million to Rp 350 million, carry a 5 percent fixed interest rate with a 20-year maturity.
Incentives
To support the program, Bank Indonesia(BI) has increased the maximum loan-to-value (LTV) ratio from 80 percent to 85 percent. This means the down payment is reduced from 20 percent to15 percent of the property value. On the fiscal side, the government issued Government Regulation No. 34/ 2016 on Sept.9, 2016to reduce the income tax (PPh) on land and buildings sales from 5 percent to 2.5 percent of the taxable value of property (NJOP).
The stimulus program has led to an increase in credit growth, benefiting all parties: the government, BI, and businesses, especially in the property sector. The IndonesianFinancial Statistics published in April 2017 showed that property loans grew 15.01 percent from Rp 614.17 trillion in February 2016 to Rp 706.35 trillion in February 2017. This is an encouraging growth, because it is higher than the 14.98 percent growth in December 2016.
The total property loan of Rp 706.35 trillion includes construction, real estate and mortgage loans, as well as apartment ownership loans (KPA). Construction loans grew the most by 26.98 percent from Rp 165.05 trillion to Rp 209.58 trillion (contributing 29.67 percent of total property loans). Credit growth in real estate loans grew the second highest by 20.72 percent, from Rp 106.87 trillion to Rp 129.01 trillion (contributing 18.26 percent).
Unfortunately, the KPR and KPA loans rose by only 7.45 percent from Rp 342.25 trillion to Rp 367.76 trillion. Nevertheless, their growth contributed the most at 52.07 percent of total property loans.Moreover, the total property loan growth of Rp 706.35 trillion contributed 17.09 percent of Rp 4,133.46 trillion in bank credit as of February 2017.
However, the 1 percent down payment will burden borrowers when making their monthly installments. When the down payment is low, the monthly installment is high, and vice-versa. To overcome this, borrowers increase the down payment as high as possible so that their monthly installments will be lower. A high down payment is good for the future, as the present value of money is higher than it will be in the next 10-15 years. The monthly installment value will no longer be high 10-15 years into the mortgage.
To help with home ownership, the National Social Security (BPJS Ketenagakerjaan) provides down payment assistance for house loans. Unfortunately, the offer applies only to employees who are BPJS Ketenagakerjaan members.
Once again, what about informal workers, such as motorcycle taxi (ojek) drivers, street vendors, taxi drivers, fishermen, farmers, carpenters and construction laborers? It would be better if the government also provided home loans for informal workers who number much higher than formal workers. In fact, the government has prepared this through Law No. 4/2016 on Public Housing Savings (Tapera).
The ensuing Tapera program collects funds pooled from a percentage of members’ incomes, a mandatory contribution made periodically within a certain period of time. The Tapera fund can only be used for housing finance and/or are returned with interest to members after their membership ends.
The Tapera aims to provide sustainable long-term funding for housing finance to meet the needs of decent and affordable housing for participants. Tapera participants include not only formal workers but also informal or self-employed workers. Self-employed is any Indonesian citizen who works independently and don’t depend on any employers in earning their incomes.
Unfortunately, the Tapera program has not been fully implemented even though the law has existed for about a year. Why? Because the Tapera Committee, which formulate general and strategic policies in Tapera’s management, was formed only in December 2016, while according to the law, the Tapera Committee should have been formed no later than three months after the law was enacted (March 24, 2016), or on June 24, 2016.
Thus, the Tapera Committee’s task of forming the Tapera Management Board (BP Tapera) will also be delayed. The BP Tapera is to organize and supervise the management of the Tapera program to protect its members’ interests. The law stipulates that the BP Tapera should be fully operational within two years of its enactment.
Operational tips
As a result, mortgage loans for informal workers will also be postponed until the BP Tapera is fully operational. This can actually be avoided.
Here\'s the trick. First, Bank BTN, a government bank with its core business of housing finance, offered micro-KPR loans that can be utilized by informal sector workers. Initially, Bank BTN targeted traders who were members of the Association of Mi Bakso Traders (Apmiso), followed by targeting other food traders, fishermen, farmers, and other informal workers.
It\'s a good breakthrough. Why not? The micro-KPR loan requires only a 1 percent down payment for the first home purchase, while the down payment is at least 10 percent for home renovation and home construction. All have a maximum credit of Rp 75 million and a 7.99 percent fixed interest rate for a 10-year maturity term. Different from the KPR-FLPP, the micro-KPR loan targets the low-income households with an average monthly income of Rp 1.8 million-Rp 2.8 million that has not been touched by banks. The number of MBRs is estimated to reach 6.5 million people.
Second, the government can invite state-owned banks Mandiri, BRI, and BNI to take part in providing home loans to informal workers in addition to micro-KPR loans.
Why should it be state-owned banks? Because, in addition to functioning as a financial intermediary, state owned-banks act as agents of development – a fact that has almost been forgotten. This means that stated-owned banks must participate in supporting the government\'s development program; in this case, the provision of home loans for low-income families.
The move could help reduce the banks’ excess liquidity, which are placed in securities. The Indonesian Banking Statistics, published on April 18, 2017, shows that the placement of state banks’ funds in securities rose by 14.42 percent, from Rp 300.17 trillion in February 2016 to Rp 343.46 trillion as of February 2017. The banks’ funds placed in Bank Indonesia Certificates (SBI) increased by 16.21 percent from Rp 15.55 trillion to Rp 18.07 trillion, and those in the State Treasury (SPN) rose by 207.42 percent from Rp 3.10 trillion to Rp 9.53 trillion. Meanwhile, funds placed in bonds rose by 1.29 percent from Rp 243.75 trillion to Rp 246.89 trillion, and those in other securities soared by 82.61 percent from Rp 37.77 trillion to Rp 68.97 trillion in the same period.
By participating in the provision of home loans for informal workers, the excess liquidity of state banks will be more beneficial for the lower class. The three state banks have been actively involved in providing home loans, so the government needs only to further encourage them to increase their home loans for low-income families.
Thirdly, the government, BI or the Financial Services Authority (OJK) may set up a pool of funds to finance an informal worker\'s home loans. This can be offered to all interested banks, with priority given to banks in Buku 3 category (core capital over Rp 5 trillion to under Rp 30 trillion) and Buku 4 (core capital over Rp 30 trillion). Their capital is higher. The mutual funds can be used to help underfunded banks to finance home loans for informal workers. This aims to ensure the sustainability of the grand project. Borrowing banks are subject to interest rates, just like the interbank money market (PUAB) loans, but with lower interest rates of 15-25 basis points (bps).
The lower interest rate is an incentive. This means that the interest rate of the mutual fund should be lower than that of the interbank money market rate, making it more attractive for banks to utilize.
This way, slowly but surely, low-income families will be able to enjoy decent homes in the future. The housing backlog will be reduced and at the same time, banks will gain significant interest incomes from micro loan assistance.
PAUL SUTARYONO
Banking Observer and Former Assistant Vice President of BNI
