New govt urged to build cheap houses

Zakki P. Hakim, The Jakarta Post, Jakarta

The new government should make the property sector an engine for economic growth, especially by encouraging developers to build low-cost houses and apartments for low to middle-income people, a leading property consultant said on Wednesday.

Director of the Center for Indonesian Property Studies (CIPS), Panangian Simanungkalit, said that economic growth can be accelerated by developing 500,000 units of low-cost houses and 50,000 middle-class apartments in big cities across the country within the next five years.

"The projects could become an instrument to absorb unemployment," he said during the launching of his book entitled, "Is property business moving toward another crash?"

According to CIPS research, the property sector contributed up to 51 percent to economic growth last year.

Panangian also said that developing low-cost housing would make political sense for the new government.

Without sufficient supply of affordable housing facilities, the government could potentially face social unrest, as currently there was a growing trend that only "the haves" could purchase houses, he said.

During the past five years, the government could only provide around 200,000 units of low-cost houses, or an average of 40,000 units each year. In comparison, previous authoritarian president Soeharto, built an average of 138,000 units each year from 1993 to 1998.

Panangian suggested the government provide fiscal incentives, such as housing subsidy for the lower income people, and also relax banking regulation to encourage banks to lend more money to the property sector.

Elsewhere, Panangian said that building middle-class apartments for young professionals in big cities, such as Jakarta, could actually bring in a handsome profit as in developing premium apartments.

According to CIPS research, the annual demand for apartments in Jakarta alone is around 10,000 units priced between Rp 100 million (US$11,000) and Rp 200 million ($22,000) each.

"The figure excludes potential markets from other areas near Jakarta, such as Bekasi, Depok and Tangerang," he said.

He said the return on investment (ROI) for the development of middle-class apartments could reach as high as 35 percent, but on the conditions that the government provides tax incentives for developers, speed up licensing procedures, and a low interest rate environment. But even without these conditions, developers can still enjoy a healthy ROI of around 18 percent.