Final Report

Housing Policy in Indonesia

Prepared by:
Dr. Eugenia Mardanugraha, Ssi, ME
Farma Mangunsong, SE, ME
(LPEM FEUI)

For:
Habitat for Humanity

Institute for economic and social research

Faculty of Economics University of Indonesia

I.

Introduction
Housing policy in Indonesia is conducted at national and local

levels. Housing subsidies which prepared by the ministry of public

housing is in the form of lower interest rates for people with low income.
Central government builds low-income housing, flats and supporting
facilities. While local governments build housing for people affected by the
program, such as evictions due to the government infrastructure
buildings.
Formally, the lower income people can have home by buying a good
cheap house built by the government or private. Another way to obtain
housing is to rent a house. Housing lease transactions in Indonesia is not
regulated by the government. Thus this transaction is not a formal
transaction. There is no tax that should be paid for this transaction. In
urban areas, people who have surplus money, often invest their money by
buying houses for rent, so it obtains a return.
In this there are explanations of various aspects of housing
development programs in Indonesia. This report is a complement of
survey instrument in the global housing policy indicators. The next
chapters in this report follow the structure constructed in the survey
instrument.

II.

The property rights

Home ownership in Indonesia is not limited to gender, but limited to

citizenship. Foreigners are not allowed to own a house. This prohibition

creates much fictitious ownership of house assets. On the legal documents the
house is owned by an Indonesian, but is actually owned by foreigners. The
houses are located in tourist areas such as Bali. Although not limited to

Institute for economic and social research

Faculty of Economics University of Indonesia

gender, the majority of Indonesian people are Muslims, so most of them

follow Islamic law of inheritance. House and land is a major heritage asset, so
that home ownership is still dominated by males.
Official documents of house, act of sale and certificates, is only valid for
home ownership, the document does not apply to lease transactions of the
house. The government does not regulate the rental house market. The
houses are owned by the citizens is not fully valid documents. Wild homes are
built by the community on government land, such as along the river, near the
railroad and so on. As a result, the neighborhood is turned into slums.
Government often cleans the slum area. In this case, local government have
bigger role. Residents usually did not get compensation, unless there are a
commercial project will be built in the area. Chaos often occurs when the
government made the slum clearance program.
If the government built the infrastructure and displacing people's
houses, the people who get a larger compensation is the person who has a
certificate of the house.

It also happen when the eviction conducted by

private company. The existence of a certificate adds only little compensation.

It is about 10-20% only. For example, land that is not certified valued Rp.
1,000,000 per square meter, then the land is certified maximum Rp.
1,200,000. The low difference this makes people lazy to take care of the
ownership certificate. There are no penalties for people who do not have a
certificate for the house.
Government disseminated and created an assistance program for
people that dont have a certificate for their house. In the medium term
development plan of the ministry of public housing, there is a facilitation
program pre-certification and post-certification mentoring of 30,000 units in

Institute for economic and social research

Faculty of Economics University of Indonesia

year 2010-014, with the budget of Rp. 12 billion during 2010-2014 to execute
this program.

III. The housing finance

Housing business in Indonesia is rose again in 2010, after destroyed by
the economic crisis of 1997-1998. Housing business is predicted booming until
2014. High economic growth support residential supply and demand. The
increase in business is supported by lower interest rate in financing.
Indonesia's economic growth is much better than neighboring countries
(Malaysia, Philippines, Thailand). In 2011, the association of housing
developers (real estate Indonesia REI) target home construction reached
200 thousand units, increase about 10% -15% compared to 2010.
The high demand for housing is also caused due to the high population
growth. For example, population growth in Jakarta, Bogor, Tangerang
(around Jakarta) and in 2006 to 2020 is predicted from 8.1 million to 32.6
million. About 90% of the population will be living in the area around
Jakarta, since land prices in Jakarta to be very expensive. To accommodate
population growth, it takes at least 2.1 million units houses or apartments in
Jakarta. The scenario is 2.1 million for homes consist of 1.9 million units of
landed house and 200 thousand units of apartments.
Currently, the house price is constantly increased. This is also
triggered by the rising prices of building materials. Predicted house price
correction for simple type is about 5% -10%. Currently, cement prices rose
about 6% -10%, while the iron component of steel 8% -10%. Cement demand
reach 30% of the total components of building materials.

Institute for economic and social research

Faculty of Economics University of Indonesia

IV. The housing subsidies

Housing finance subsidies is given by giving liquidity facilities from the
government to the bank that provides housing loan. Bank mix that money
with other financial products and provide housing subsidies in the form of
lower mortgage interest rates. The interest rate is set by single-digit
throughout the loan period (fixed rate). The Table 4.1 below shown the
maximum interest rates and loans provided from this subsidy program. The
installment requirement is maximum 1/3 of earnings. Subsidies are given to
home buyers (demand subsidy) given up to a maximum of 15 years.
Maximum house prices are not limited.
Table 4.1
Subsidy program for housing financing
Name of program

Maximum loan (Rp)

Maximum interest (%)

50,000,000

8.15

60,000,000

8.25

70,000,000

8.35

80,000,000

8.5

50,000,000

8.15

60,000,000

8.25

70,000,000

8.35

80,000,000

8.5

90,000,000

9.25

100,000,000

9.35

KPR Sejahtera Tapak

KPR sejahtera syariah tapak

KPR sejahtera susun

KPR sejahtera syariah susun

110,000,000

9.5

120,000,000

9.65

130,000,000

9.8

135,000,000

9.95

90,000,000

9.25

100,000,000

9.35

110,000,000

9.5

120,000,000

9.65

Institute for economic and social research

Faculty of Economics University of Indonesia

Name of program

Maximum loan (Rp)

Maximum interest (%)

130,000,000

9.8

135,000,000
9.95
Source: Ministry of Public Housing (2011). Average exchange rate is Rp. 9000 per USD

The interest rate specified in the table above is already quite high,
because the market interest rate is getting lower along with the
improvements of Indonesian economy. The difference between market and
subsidized interest rate is about 2-3%. The market interest rate for several
national private banks in Indonesia is shown in Table 4.2 below.
Table 4.2
Market interest rate for housing loan
Bank's Name

Housing loan interest rate (%)

Description

Bank Mandiri

11.75

BNI

11.80

The bigest bank in Indonesia, state

owned bank
State owned bank

BCA

7.50

Private bank

BII

11.75

Private bank

Danamon

12.5

Private bank

Permata

12.0

Private bank

ANZ-Panin

10.68

Private bank

BRI

10.22

State owned bank

BTN

11.69

CIMB Niaga

11.30

State owned bank that focus on

housing loan
private bank

Non-performing loans for housing is quite low at 2% -3%. Figure 4.1

below presents the NPL in 2011 for all banks in Indonesia.

Institute for economic and social research

Faculty of Economics University of Indonesia

Figure 4.1
Non Performing Loan Commercial banks 2011

2.92
2.85
2.81
2.78

2.77

Jan

V.

Feb

Mar

Apr

May

Jun

2.77

2.76

2.74

Jul

Aug

Residential infrastructure
In 2010-2014, the government would build 685,000 what they called

healthy simple house (Rumah sehat sederhana - RSh), 180 flat that can be
owned by the dwellers and 650 twin including block residential facilities that
support 836,000 poor families in 2012. The funds used were valued at Rp 50
trillion from national budget. As for flats, good simple flats owned or simple
flats rent reached 200,000 units with a value of Rp30 trillion. The total value
of market capitalization for the government-backed housing construction by
the year 2014 reached Rp80 trillion.
The detail of simple healthy home construction until 2014 is shown in
Table 5.1 below.

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Faculty of Economics University of Indonesia

Table 5.1
Simple house development planning
The habitable houses
year

Formal

New development

2010

150,000

2011

Increasing quality

Special house

KPRS

BLM

7,500

30,000

7,500

250

180,000

12,500

40,000

12,500

750

2012

210,000

16,250

50,000

16,250

1,050

2013

210,000

7,500

60,000

7,500

1,350

2014

200,000

6,250

70,000

6,250

1,600

Source: Ministry of Public Housing (2011)

Besides houses, the government also builds apartments. There are 2 types of
apartments, apartments for rent and for sell to the public. Table 5.2 contains
the following development plan flats Year 2010-2014.
Table 5.2
Apartments development planning
rental apartment
Year

for student and workers

in slums area

owned apartment

tower

tower

tower

unit

unit

unit

2010

100

9600

40

3960

60

30000

2011

100

9600

71

7041

60

30000

2012

100

9600

71

7041

60

30000

2013

40

3840

53

5200

60

30000

2014

40

3840

35

3458

60

30000

Source: Ministry of Public Housing (2011)

Institute for economic and social research

Faculty of Economics University of Indonesia

VI. The regulatory regime

Central government dominates housing regulations in Indonesia. Public
participation in drafting the regulation is channeled through the legislature.
Issues of housing regulation are closely related to providing homes for people
with low incomes as opposed to the construction of luxury housing and
apartments. Large scale development should be built modest houses, middle
class houses, and luxurious houses in balance.
There are no regulations that bounded residential area by a certain
race and religion. But in fact, some locations have are only inhabited by
certain ethnic group and religion. The rule that a region is only inhabited by
a particular religious group is made by developers of new housing in urban
areas, around DKI Jakarta.
The government does not regulate the minimum area of residence, so a
very small house can be inhabited by many people. Many people of urban
communities with low income levels live in rental housing that they called
the "kontrakan". Rental payment system varies, usually yearly or monthly.
"Kontrakan" that paid monthly is a very small house, but located in the
center of town. There are no regulations governing this rental activity, so
that the lease agreement occurs informally. In the event of a dispute, there is
no law governing this matter.