For the first time since its inception, the Indonesian government’s One Million Houses (OMH) programme has hit its goal of constructing at least 1m units per year, with 1.13m built in 2018 as part of efforts to reduce the country’s housing backlog.
According to Khalawi Abdul Hamid, director-general of housing provision at the Ministry of Public Works and Housing (MPWH), 50% of the homes were constructed using funds from the state’s housing budget.
This was split into two categories: physical development assistance, whereby the state directly funds construction; and financing assistance, including indirect funding via subsidised loan programmes such as the Housing Finance Liquidity Facility (FLPP), which covers 70% of mortgage funding with an interest rate of 0.5% over 20 years. Around 20% of the homes were built through the former and 30% via the latter, while the remaining 50% of properties were funded by private developers or individuals.
Outlined in Joko Widodo’s 2014 presidential manifesto, the OMH programme intends to address a lack of investment in the property market and to reduce the 7.6m shortfall in housing to 5.4m by this year. The first year of the programme’s implementation saw 699,770 homes built, followed by 805,169 in 2016 and 904,758 in 2017.
For this year the MPWH recently revealed that it is targeting the construction of 635,361 units, with state funding of Rp17.6trn ($1.3bn) allocated to achieve this. Of this total, 215,503 properties will be built through physical development assistance at a cost of Rp7.6trn ($543.5m), while 419,858 will be achieved via financing assistance of just over Rp10trn ($715.2m). The MPWH hopes that alongside private development, the overall number of units constructed will total 1.25m for the year.
See also: The Report – Indonesia 2018
Private lender agrees to support state-funded mortgage facility
Last year 70% of the properties built were aimed at low-income households, but some industry leaders feel that such development needs to be increased further in order to address the backlog of social housing.
“The approximate backlog is now estimated to be increasing by 1m units annually,” William Liusudarso, president director at Easton Urban Kapital, a property development company based in Jakarta, told OBG. “This problem could, however, be solved by the private sector being more engaged in the funding of social housing.”
One move undertaken in this regard was the signing in mid-January of an operational cooperation agreement between Sarana Multigriya Finansial (SMF), a domestic financial services provider, and the MPWH to reduce the financial burden of the FLPP on the state by 25%.
The agreement will see SMF provide financing via 14 mortgage lending banks, with the deal to be renewed on an annual basis.
Loan-to-value ratio relaxation to boost sales of mid- and high-end property
For residential sales in the mid to upper segments, Real Estate Indonesia (REI), an online property sales platform, expects the removal of the minimum loan-to-value requirement for mortgage lenders in August 2018 to boost sales by 10% this year.
The move means that first-time buyers no longer need to make a down payment of at least 15% before being granted a mortgage, allowing buyers to, in theory, obtain 100% mortgages.
While this could be a boon to first-time buyers, the market for condominiums and high-rise developments is dominated by investors rather than end-users, meaning that it faces a slightly different set of challenges.
“While the landed housing market has continued to perform robustly for property developers – as this is a sector comprising of 75-80% end-user buyers – the condominium market still has investors serving as the main purchasers,” David Cheadle, managing director of US-based commercial real estate services company Cushman and Wakefield, told OBG.
“Although pre-sales have been gradually declining from 68% in the second quarter of 2017 to 56% in the fourth quarter of 2018, the current level of pre-sales still remains pretty healthy in regional terms. Historically, condo sales rates in Indonesia have been inversely-correlated with bank deposit interest rates, and since the Bank of Indonesia is looking to hold recent interest rate increases to their current levels, together with improving market sentiment, there is an expectation of demand and sales growth into the second half of 2019,” Cheadle said.
Data compiled by real estate investment management company JLL in its “Jakarta Property Market Review Q3 2018” report suggests that the condominium market “remained challenging”, achieving sales of around 1000 units in the third quarter, which represented a 200% year-on-year decrease.
JLL pointed to the upcoming presidential election in 2019, competition with the secondary market and currency depreciation against the dollar as driving the continued stagnation, stating that smaller units were selling better.