Indonesian Developers Switching to Middle-Income Housing

Bureaucracy makes constructing low-cost housing difficult for property firms

By Ely Rahmawati
Category Analysis, Business, Featured

Rising purchasing power, low interest rates and moderate inflation has encouraged home purchases. (JG Photo/Safir Makki)

Property developers are increasingly targeting the middle-class property segment and are abandoning cheap homes that remain marred by bureaucratic hurdles and low profit margins.
Rising purchasing power, low interest rates and moderate inflation has encouraged people to buy housing in the range of Rp 200 million to Rp 500 million ($20,500 to $51,000) a unit as opposed to low cost housing that has a subsidized price of less than Rp 100 million.
Setyo Maharso, chairman of Real Estate Indonesia, said that developers started to switch to middle-class home projects last June, when the government suspended housing financing liquidity facility (FLPP) loans on houses smaller than 36 square meters.
“Because of that problem, low-cost housing developers have switched to middle-class housing,” Setyo said. “Apparently, the medium class was sold out. So why do they need to sell cheap houses?”
Limited supply in small-plotted homes has also driven up the price in that segment. The price of small houses rose 8.3 percent in the first quarter compared to a quarter earlier, according to a survey by Bank Indonesia, the central bank. That was almost double the average increase of 4.8 percent for all homes.
The central bank defines a small house as one with an area of 36 square meters or less, while medium types have areas of between 36 square meters to 70 square meters. A home at more than 70 square meters is classified as a large house.
“Home prices increase due to rising prices of building materials, the increase in the wages of workers, as well as the still-high cost of permits,” the central bank said in its survey.
REI’s Setyo said that the government should maintain consistency in its policy regarding homes for the low-income population. He noted that coordination between government institutions is still lacking, leaving developers confused about overlapping authorities and complicated permits.
“If regulation stops, do not blame the developers if they are reluctant to supply small houses,” he said.
Eddy Ganefo, chairman of the Indonesia Housing Developer Association (Apersi), said that companies in his association remain focused on developing low-cost housing. About 90 percent of the association development target of 100,000 units in 2013 was for low-cost housing.
“There are developers that switched to a commercial house because of the better margins. But there is still a lot of  subsidized housing development, particularly in the Greater Jakarta area,” Eddy said.
Supply of low-cost housing in the first quarter of this year was low, Eddy said, because many were still under construction and were slightly delayed due to the rainy season.
Additionally, in the first quarter, developers were still coping with new regulation from the National Land Agency that required them to divide their plot of land into individual certificates before selling the house on that piece of land. Developers used that delay in the process to keep home prices low.
“I believe that sales in the second quarter of 2013 will increase. Demand in the low-cost housing market is still huge,” Eddy said.
Sri Hartoyo, the financing deputy at the Housing Ministry, said there is still a lack of existing supply for low-cost housing, and development of new homes is hindered by rising land prices in some areas.
Until the first quarter of 2013, sales of low-income subsidized housing for as many as 22,385 units were valued at Rp 1.1 trillion, equivalent to 18.5 percent of the government’s target of as much as 121,000 units this year.
The total budget for mortgage subsidies this year is Rp 10 trillion, of which the government provides Rp 7 trillion and banks provide Rp 3 trillion. The government provides the subsidy to workers who each have an income of up to Rp 3.5 million a month.
Sri said that the government would maintain the indicative price for low-cost housing eligibility for the subsidy, despite the increase in the electricity tariff and the planned fuel oil increase in mid-2013.
“Price will remain the same for Bekasi, Depok, Tangerang at about Rp 88 million. Meanwhile, outside those regions, it will be around Rp 96 million,” he said.
Sri said that, even if electricity and fuel price hikes push up the cost of building materials, developers can keep the price stable with a smaller floor area.

resource :  http://www.thejakartaglobe.com/business/indonesian-developers-switching-to-middle-income-housing/