Govt suspends subsidy for low-cost housing

Govt suspends subsidy for low-cost housing

JAKARTA (JP): The government has suspended subsidies for the
purchase of low-cost housing until the economy emerges from the
crisis, dealing another blow to embattled property developers.

Director General of Finance Susiyati B. Hirawan said on
Tuesday that providing the subsidy would be economically
inefficient and hamper efforts to promote economic growth.

She added that the limited resources available must be
prioritized for achieving economic growth, as agreed between the
government and the International Monetary Fund, which is
administering a multibillion dollar bailout package.

"The government's main concern right now is economic growth,"
she said in a speech at a seminar on the prospects of financing
housing projects amid the economic crisis.

"So the availability of the subsidy facility for the purchase
of (low-cost) housing has to wait until the economy recovers."

Susiyati said the government would continue to provide
financing assistance, through the social safety net program, for
low-income families to curb the trend for people to sell their
homes for quick cash.

The multibillion dollar social safety net program, financed by
various international donor agencies and countries, was initially
designed to provide the poor with income-generating activities,
heavily subsidized basic foods, medicine and education.

"The facility is only meant to protect the house ownership of
the poor families and not for the purchase of new houses," she
stressed.

Housing developers have received a whipping in the crisis, in
which analysts expect their orders this year will diminish by 70
percent.

The sharp depreciation of the rupiah in August last year
prompted the country's monetary authority to boost interest rates
considerably, a jolt for developers who made aggressive
investments during the boom times of 1996 and early 1997.

Housing developers built 700,000 low-income units from 1994
through 1997, much higher than the initial target of 500,000
units.

Before the crisis developed, the government subsidized low-
cost housing by offering lower mortgage interest rates.

Susiyati said the government may reintroduce the housing
purchase subsidy when the economy recovers, but the amount would
be limited of subsidy because of the cost to the economy.

"How far can we tolerate a reduction in economic growth to
provide subsidies for the housing purchase?"

She explained that when the economy started to grow, the
government would put priority on realizing a funding institution
under the secondary mortgage facility (SMF) scheme to provide
nonsubsidized financing for middle-income families for housing
purchases.

The realization of the government-sponsored SMF has been
delayed as the main sponsors, Bank Indonesia and the Asian
Development Bank, have not disbursed their cash participation,
leading other investors to also delay entry, Susiyati said.

She admitted that until signs of economic recovery emerged,
the SMF may not be realized as well.

"The establishment of the SMF must be a priority for the
government because of its multiple benefits." She added that the
government would continue making preparations to lay the
groundwork for quick implementation of SMF when the economy
grows.

The SMF is designed to pool together a large number of
investors willing to invest on a long-term basis at a low return
in a safe program. Cheaper and with longer maturity than bank
loans, the funds will be used to finance the development of
housing projects for middle-income families. (rei)