Government-Banks Discuss Home Credit for People with a Maximum Income of IDR 15 Million

A breakthrough is needed to overcome the housing shortage in Indonesia, which has reached 12.7 million units.

KOMPAS/AGUS SUSANTO

Aerial photo of a residential area in Tambun Utara, Bekasi Regency, West Java, on Friday (5/1/2024). The demand for housing is dominated by low-income and lower-middle class segments of society.

JAKARTA, KOMPAS — A number of groups have proposed that people with a maximum income of IDR 15 million per month can also access housing subsidies. For this reason, they are pushing again for the interest difference subsidy scheme for financing housing.

The current housing subsidy program targets low-income communities with a monthly income range of IDR 8 million to IDR 10 million, based on zoning. As for subsidized landed house prices, they are set at around IDR 166 million to IDR 240 million, based on zoning.

Consumer Director of PT Bank Tabungan Negara (Persero) Tbk or BTN, Hirwandi Gafar, said that housing subsidies for people with a maximum income of IDR 15 million per month and the interest difference subsidy scheme are now in the discussion stage with the government. BTN proposes that the scope of housing subsidies be expanded to target people with low incomes, with a maximum house price limit of IDR 300 million per unit.

Also Read: Million Houses Program Not Enough to Overcome "Backlog"

The proposed price limit of a maximum of IDR 300 million per unit aims to encourage the supply of subsidized housing not too far from the city, and with larger building sizes. He gave an example, the price of subsidized housing units for low-income people in Jabodetabek is currently set at a maximum of IDR 180 million.

However, the supply of subsidized housing is located far from the city center. The average building area is only 27 square meters.

"Subsidized houses are expected to be built near the cities, not too far away," said Hirwandi last weekend, during a series of celebrations for the 52nd Anniversary in Labuan Bajo, West Manggarai Regency, East Nusa Tenggara.

KOMPAS/PRIYOMBODO (PRI)

Samina hung out a mattress in a subsidized housing complex in Cibunar Village, Parung Panjang, Bogor Regency, West Java, on Monday (February 19, 2024). This housing complex with a subsidized mortgage scheme is intended for low-income communities with low interest rates and light installments.

Until now, the government has implemented a subsidized financing scheme in the form of a housing financing liquidity facility (FLPP) for low-income communities. The scheme imposes an interest rate of 5% per year for a home ownership loan (KPR) with a term of up to 20 years.

To support the expansion of subsidized housing coverage, Hirwandi added that subsidized mortgages in the form of FLPP need to be changed to interest rate subsidies (SSB). A 5% per year interest rate subsidy is proposed for low-income communities. Meanwhile, the interest rate for middle-income communities is set at 7% per year.

In the interest rate subsidy scheme, the government bears the difference in the mortgage interest rates imposed by banks. As an illustration, if the mortgage interest rate is 11 percent, then the subsidized mortgage interest rate that will be imposed on low-income communities is 7 percent per year. The remaining 4 percent is borne by the government.

Subsidized home loan tenure, according to Hirwandi, needs to be limited to 10 years. Beyond that, it will follow the market interest rate. This is because people's incomes will continue to increase. Society tends to pay off their installments on average after entering the 10th year, even if they take a longer tenure.

"The perspective is that future economic growth will be good," said Hirwandi.

KOMPAS/FERGANATA INDRA RIATMOKO

The opening of land for the construction of subsidized houses was carried out by bulldozing the hills in Sidorejo Village, Godean, Sleman, Yogyakarta Special Region on Monday (17/7/2023).

Endowment funds

Hirwandi stated that subsidized housing financing for low-income and middle-income households through interest rate subsidies is done by allocating government funding for FLPP into perpetual funds.

This fund will be managed by the People's Housing Savings Management Agency (BP Tapera). Its management will be invested in long-term state bond instruments.

The return on investment from the placement of the eternal fund will be used to cover the needs of housing subsidies with the pattern of interest rate difference subsidies. Thus, the allocation of housing financing subsidies by the government is not directly distributed to the community.

Also read: Encourage 3 Million Houses, Subsidy Scheme Proposed to Change

However, it is placed and managed through an endowment fund. This is different from the FLPP fund which is a revolving fund to be directly distributed to the community.

"The pattern of subsidizing financing by utilizing the returns on the perpetual fund will also attract investors to securitize assets (home mortgage portfolios) so that the securitization of housing financing assets in Indonesia can revive," he said.

KOMPAS/PRIYOMBODO

Residents' activities in subsidized housing in Cibunar Village, Parung Panjang, Bogor Regency, West Java, Monday (19/2/2024).

Never deleted

Previously, the government has implemented a subsidy scheme for the interest rate difference for subsidized mortgages. However, the interest rate subsidy was removed in 2020. In 2019, the distribution of subsidies through the interest rate subsidy scheme amounted to IDR 3.1 trillion to finance 99,907 housing units.

One of the reasons for the elimination is that the interest rate subsidy difference is considered to place a heavy fiscal burden on the country due to the long tenor of mortgages taken out by customers. In addition, the subsidy budget is considered difficult to predict every year because it is adjusted to the prevailing interest rate.

Until 2022, the housing shortage (backlog) in Indonesia will cover 12.7 million families or 18 percent of the total families in Indonesia. Meanwhile, the rate of need for new homes continues to increase by 600,000-800,000 units per year. The provision of housing is barely able to keep up with alleviating the housing shortage.

The elected presidential and vice presidential pair for the 2024-2029 period, Prabowo Subianto-Gibran Rakabuming Raka, promised a program to build 3 million houses per year. This amount is three times higher than the one million housing program launched during President Joko Widodo's administration.

KOMPAS/PRIYOMBODO

Worker activities at the subsidized housing construction project in Cibunar Village, Parung Panjang, Bogor Regency, West Java, Monday (19/2/2024).

Executive Director of Indonesia Property Watch, Ali Tranghanda, when contacted separately, stated that financing for the lower to middle class or those with limited income needs to be rolled out because the demand for first homes in that segment is still very high.

However, financing schemes in the form of subsidies for interest rate differences amidst the government's budget constraints are not the only solution to overcome the shortage of housing.

He believes that the allocation of interest rate subsidies is not a revolving fund, so the government's budget will not be lost. This is different from the FLPP scheme, which is a revolving fund that can be used for sustainable subsidy financing.

"I think it is still better to increase the FLPP budget, rather than subsidizing the difference in interest, because in the long term, FLPP funds are not a lost cost. "The allocation of interest difference subsidies is a sunk cost and cannot be recovered," said Ali.

KOMPAS/HENDRA A SETYAWAN

Construction workers rest after working all day on building new housing in the Curug area, Depok, West Java, Wednesday (24/1/2024).

On the other hand, the pattern of subsidizing the interest rate difference for subsidized home loans with a ten-year tenure, followed by market interest rates, is considered to burden the community in paying installments. This is because some lower-middle-class consumers generally only able to repay the home loans within a period of 15 years.

Hirwandi argues that the allocation of the State Budget for interest rate subsidies does not need to be placed in the expenditure category, but in the rolling fund category, such as only FLPP. This is because the interest rate subsidy for housing financing will be sourced from the results of the eternal fund investment.

Also read: Strengthen Subsidized Housing Support

According to the Chairman of the Central Management Board of the Indonesian Real Estate Association (REI), Joko Suranto, efforts to address the shortage of housing are not only about financing but also about supply. The supply of houses is influenced by many variables. Land supply needs to be accompanied by development in accordance with demand.

He urges the government to conduct data collection or a census in order to have detailed data on the housing needs of the community, including names and addresses. This is to align the housing supply in locations that are suitable for the community's needs.

"This is what we are asking for the government to havebig data by name by address, regarding the housing backlog. "Without data verification, we predict that the housing shortage until 2035 will still be above 5 million units," he said.