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)