Affordable Housing For All:
National Affordable Housing Program
Indonesia is undergoing rapid urbanization
Indonesian Population, 1970-2035
Urban Rural Urbanisation Rate
1970-2015 2015-35f
reach 71 percent by 2035, while the rural population will shrink
The eed for afforda le housi g i reases with I do esia s rapid
urbanization
Urbanization drives economic growth and
creates higher income opportunities: 18
mm of 21 mm new jobs between
2001-2011 were in urban areas.
Demand for housing is growing along with
urbanization rate and rising incomes
Urbanization exposes poorer households in
cities to negative externalities, increased
overcrowding
1and limited access to key
services and amenities
Urbanization rate is one of the highest in thedeveloping region
0 20 40 60 80
India Vietnam Philippines Thailand Indonesia China Malaysia
Urbanization Rate (%), 2015
(1) Reaching ~20% in core cities, as per Susenas 2014
There is a substantial existing housing deficit
Backlog Estimate
Classification
Total Units
Low Estimate
Only Slum Households
3.9 million
Middle Estimate
Only overcrowded units
7.5 million
High Estimate
Non-home ownership, reported
by BPS and MPWH
17.2 million
Various Housing Backlog Estimates
Of the 64.1 million housing units in Indonesia, 20% are in poor condition
Housing backlog ranges from 3.9 mm to 17.2 mm (see below).
820K units of housing are required each year to meet new demand, estimate that 200K - 370K HHs will not have
their housing needs met.
Market-rate housing without subsidy enhancements is affordable only to the top 20%.
60% of Indonesians do not form part of the formal workforce, no mortgage products available for this segment.
GoI sets Satu Juta Rumah
Annual Housing Target in 2015
•
GoI Housing Budget of ~21 T IDR (~0.2% GDP) in 2016
• Conservative relative to peer countries: Thailand at 2.2% GDP and Philippines of 0.3% GDP
• Inadequate to meet 1M housing units target
•
On the housing finance subsidy side - FLPP:
• 2015: Spending of ~6T IDR delivered 90,000 units
• 2016: Budget of ~13.2T IDR expected ~200,000 units
•
On the housing supply side - BSPS:
• 2015: Spending of ~1.2T IDR only 83,000 units
• 2016: Budget of ~1.4T IDR to deliver 95,000 units
Increased public spending cannot fill the gap to 1M Homes:
Need efficiency of spending and massive mobilization of private sector participation
Housing Budget Allocation for Different Housing Programs (in IDR B)
0 2000 4000 6000 8000 10000 12000
2012 2013 2014 2015 2016
6
FLPP Product
Decile 9-10
Decile 5-8
Decile 1-4
6 Banks
76% Share
(Formal Income)
Gaps: Middle Low Income &
Non-Fixed UNSERVED
*Mortgage Loan Origination of ~80 T IDR in 2015 BTN
98% Share
*Sources: BI Residential Property for Primary Houses, MPWH data and World Bank Assumptions
Only the Top 2 Deciles of Income Distribution are Well Served; 5
th
to 8
th
Deciles Underserved and Mostly by One Bank
@ Avg 500M IDR;
~ K Loa s
@ Avg 100M IDR;
~7 K Loa s
Current Subsidy Schemes Use Deep Interest Rate Subsidies
–
5% loans in 12%
Market Rate Environment
…
1. Expensive
–
Economic and Fiscal
• SSB: NPV ~55%; FLPP: NPV ~ 50%
2. Inequitable
• Regressive, larger loans with higher subsidy
• Poor targeting – Even D8 income can benefit
• Only serve salaried workers
3.
Not Transparent
• SSB carries high future liabilities worsened by interest rate risk
4.
Not Conducive To Housing Finance
Market Expansion
• FLPP: Minimal leverage (10-30% leverage)
• SSB: Unfunded prevents lender participation
• Non-market rate cash-flows cannot be refinanced
….
No path to reach GoI housing targets with current mix of schemes
1. Unattractive Subsidy Programs
• Constrained net interest margins and returns
2. Lack of access to LT funds
• SMF funds expensive and short term
3. Credit risk for non-
fi ed HH s
4. Market structure - BTN near monopoly
GoI programs with many constraints
Lenders face constraints to go down-market
1. Non-fixed income segment un-served
• Though capacity to pay exist
2. Developer-built properties only
• Self-built 70% of new construction
• Developer-built growing far away from city centers (going against urbanization trend)
Weaknesses in institutional arrangements and building blocks prevent effective
delivery of housing solutions
•
Central government implements most housing programs with a limited role of
local government
•
Program funds flow directly from central government to projects
•
Local governments lack adequate funding and technical capacity to take on an effective
role in supporting affordable housing provision
•
Key building blocks for improving housing sector governance are lacking
•
Lack of clear reporting and accountability mechanisms to monitor program performance
•
Lack of uniform standard definition of housing deficit figures, affordability and targeting
indicators
Supply Side: Developers face constraints in delivering affordable
housing
Land
:• Private developers of affordable housing have difficulty accessing land at the right price and location
Permitting & Zoning:
• Wide disparities between LGs for permit issuance, delays in permitting are costly.
Titling:
• BPN is slow in issuing title certificates, can take 12-36 months for multi-story strata titles.
Taxation:
• Land tax has increased ahead of inflation norms. Transfer and VAT taxes in Indonesia are ~15%, far higher than other countries in region (India, Malaysia, Taiwan, Bangladesh ~ 8%)
Finance:
• Most developers rely on own capital for construction
• Large developers borrow from commercial banks or issue bonds at ~13% for a 12-24 month term
Perumnas
:• SOE esta lished i 97 to e I do esia s offi ial pu li
housing developer (Regulation 29/1974)
• Since 1997, GoI withdrew preferential treatment
• Currently functions more as a commercial developer
• Affordable housing volume of ~10K only (2015)
Two Real Estate Associations
1. APERSI:
• 2500 members characterized as small/medium size
• Apersi account for ~60% of total FLPP volume
• Profit margin of ~10% for FLPP landed houses
2. REI:
• 2800 members, larger in size and focused on high-end
• Participate in some FLPP development, and affordable housing defined as 200-400MM IDR
FLPP project locations are increasingly farther from city centers, making
available supply attractive to a limited consumer segment
2013
City center 2015
Example of FLPP project location in Semarang
• ~100% FLPP properties developer built landed houses, away from city centers
• 21-36 m2 in size
• 110-135 MM IDR in price (eligibility criteria)
• Industrial workers, civil servants ….mostly salaried workers are buyers
FLPP Supply side delivery
…
…
Differ
fro Co su ers’ Ho e Aspiratio
1• Price point aspiration: 150-300MM IDR
• Location preference: near to current neighborhood, current rental or family
• Self-built allow for larger unit
National Affordable Housing Program Designed to Address Two Broad
Objectives:
•
Increase access to affordable housing for lower-income (deciles 1-6)
households
National Affordable Housing Program: 3 Key Components
Down Payment Assistance (BP2BT)Component 3
Technical Assistance for Strengthening Housing Sector Management
HREIS
Access to Housing
Finance
Policy Advisory for
Housing
LG’s Capacity Building on
Housing Development
National Affordable Housing Program
Objective: To improve access for targeted low income people to affordable housing (USD 1.2B, 450m of WB financing)
Component Objective Amount of Loan 1. Mortgage-Linked
Down Payment Assistance (BP2BT)
To develop and implement a down payment assistance scheme linked to housing finance
USD 215 M
2. Home Improvement Assistance (BSPS)
To expand and strengthen BSPS
home improvement subsidy USD 215 M
3. Technical Assistance for Housing Policy
Reform
To strengthen the housing sector and the enabling environment for affordable housing
USD 20 M
Component 2
Home Improvement Subsidy (BSPS)
under DG of Housing Provision under DG of Housing Finance
Bottom Down Payment Assistance (BP2BT)
Component 3
Technical Assistance for Housing Policy Reform
HREIS Local Government
Housing Policy and Planning
Capacity
Component 2
13
BP2BT Scheme
•
Savings / Down Payment
by household at a minimum of 5% of house-value;
income proxy (non-fixed income); creditworthiness assessment
•
Down-payment Assistance
fixed and non-fixed households, scaled by
income, at ~10% to 40% of property value/cost
•
A mortgage loan; maximum a household can afford
–
~50% to 80% from a
lender of choice
•
Loans made at
market interest rates
deter i ed ea h le der s risk
appetite and business model: focus on lender profitability and allow for
securitization in due course
•
Leverage private and household resources
•
Lenders qualify customer for loan
Housing Finance Subsidy
Savings
5%
25%
70%
Standard Home Purchase
Down payment subsidy scheme allows GoI to quadruple targets with same spending as FLPP
Rationale Behind BP2BT: Need Smart Subsidy System to Leverage
14
FLPP/SSB
BP2BT
Income Segment Middle Income
Up to D8 decile D6 to D3 income deciles
Target segment with critical housing needs
Income Type Fixed* Non-Fixed
Informal Income (Emphasis) Un-served segment
Type of Subsidy Interest rate
Regressive
Down-payment
Progressive
Higher subsidy to lower income segments
Pricing Set by GoI at 5% Market based Sustainable program
Property Type Developer Built (New)
1. New and Existing Properties
• Landed Houses
• Low-rise Verticals / Multi-Story 2. Self or Re- Construction
Existing Properties: Monetize existing stock and address lack of land supply. Low Rise Verticals:Closer to city centers at right price points
Channel BTN with
98% market share
Opened to broad lender engagement
Diversify lender channels and outreach
Government Support Support through
life of loan
One-time support
More cost effective than interest rate subsidy. Eliminate rate and inflation
risk for GoI budget
(*) Not by programmatic decree, but practically
Advantages
Comparing Critical Differences Between Schemes
15
•
GoI Budget to build 100K Units:
• FLPP requires 3X, 4X to 8X of budget than that of BP2BT on day one
• FLPP is regressive - higher subsidy for higher income households
•
Effective Cost to GoI:
• BP2BT costs ~25% to ~75% of FLPP (NPV basis)
•
Equity Across Income/Employment Households:
• BP2BT assistance higher for lower income levels (progressive)
• BP2BT down payment is one-off assistance that allows families to build 30-40% equity in home on day one
•
Consumers Monthly Installments:
• Same for lower income households (3.4 MM HH Income)
• 15% higher for BP2BT at highest income segment (6.5MM HH Income)
Key Variables (in MM IDR)
Scenario I: 3.4MM HH
Income
Scenario II: 4.5MM HH
Income
Scenario III: 6.5MM HH
Assistance Cost (NPV Basis)
40 31 54 29 94 25
Monthly
Installment 0.8 0.8 1.1 1.2 1.8 2.1
GoI Budget Requirement per 100,000 units
8.9 3.1 12.1 2.9 21.0 2.5
Reduce Housing Backlog and Alleviate Substandard Houses
Target the Bottom of the Pyramid segment, Deciles 1-3
In rural and expanding toward urban areas
Focus on community ethos
Assistance are provided in cash, construction materials/services, and infrastructure
Assistance amount and type based on level of sub-standard housing and geographical
dispersion
What are the Key Characteristics?
Family
Own or possess the control on the
land
Never own house; or live in
substandard house
Never receive BSPS assistance
Earn income at maximum equal to
Provincial Minimum Wage
Own the capacity and plan to
build/improve the house
Willing to work in group
Willing to follow BSPS requirements
Who is eligible for the assistance?
Goal 1: Increase number of households reached by BSPS subsidy
17
I. THE OBJECTIVES OF RPJM (2015-2019)
No ACTIVITY TOTAL
1 Development of New Self-Help Houses 250,000
2 Quality Improvement of Self-Help Houses 1,500,000
Total 1,750,000
II. PROJECTED UNITS UNDER CURRENT BUDGET ALLOCATION
No ACTIVITY TOTAL
1 Development of New Self-Help Houses 100,000
2 Quality Improvement of Self-Help Houses 300,000
Total 400,000
•
Gap of 1,350,000 Units and 1.8 Billion USD
in financing between RPJMN targets and
Budget Allocation to BSPS
•
World Bank proposes an initial investment
of 215 Million USD for Perumahan Swadaya
•
Buys ~200,000* additional units
•
Potential for refinancing in later years if
demand warrants
* Depends on relative mix of new units vs improved units
ASPECT
Area of Improvement
Eligibility Verification and documentation on land title
Data collection through database management
Targeting Social inclusion through database management
Enhance targeting documentation and auditing
Improve linkage to other similar program
Assistance Include health aspects into assistance purpose
Recalculation of appropriate amount of assistance
Management Clearly defined task description for management team
Strengthening management team capacity through training
M&E Redefine the substandard housing across institution
Result-based approach to M&E framework
Component 3.1: Technical Assistance for Housing Finance
19
HREIS
Access to Housing
Finance
1. Secondary Mortgage Market: Reform to allow SMF to facilitate competitive long-term funding to refinance and securitize affordable loan portfolios
2. Housing Provident Fund Law (Tapera): Assist in the development of regulations and institutional arrangements for and in the operationalization of Tapera
3. Mortgage Guarantee MG : Stre gthe MG produ ts a d pri i g, a d MG o pa ies capacity. Develop relevant regulatory framework.
4. Housing Microfinance (HMF): Expand access to HMF by understanding binding constraints across MFI segments, and developing and testing HMF products
Develop Housing Real Estate and Information System to serve as:
• A depository of housing and real estate related data on both supply and demand sides and;
• A knowledge center that provides robust housing analysis and insights on housing trends, gaps and potentials.
Component 3.2: Technical Assistance for Housing Supply
20
Development and Reform of Public Housing Program
Strengthening Perumnas as a Public Affordable Housing Developer
Strengthening Local Government
Housing Policy and Planning Capacity
Regulation No 83/2015: Mandates that Perumnas acts as land asset manager, public
housing and urban developer, and building / estate manager for the release of state assets for affordable housing.
TA to support Perumnas in performing above functions.
Multi-year TA program to strengthen capacity of medium and large cities to develop and implement effective local affordable housing plans and programs.
Multi-year TA program to assist MPWH to diversify, reform and expand physical housing typologies and tenure options for publicly subsidized formal housing. Rental housing assistance models and core starter housing production will be explored.
22
A. Grouping 34 provinces UMP into 9 zones (using MoF PMK definition). Max Ind. Income = Highest of (UMP X 1.5) B. HH Income = 1.82 working adults / HH
C. Adjusting Zones 5, 6 and 9 upward by 25% to reflect higher property values
D. Comparison Max HH income against Susenas Data to indicate income segment targeting
Zone 1: Java 2.3 Zone 2: Sumatera 2.2 Zone 3: Kalimantan 2.2 Zone 4: Sulawesi 2.4 Zone 5: Maluku & North Maluku 1.8 Zone 6: Bali & Nusa Tenggara 1.8 Zone 7: Papua & West Papua 2.4 Zone 8: Riau Islands & Bangka Belitung 2.3 Zone 9: Jakarta + Bogor, Depok, Tangerang, Bekasi 3.1
* Avg. no. of working adults per household, used as a multiplier to derive # Zones 5 and 6 incomes adjusted by +25% to be in line with higher proper ^ Zone 9 incomes adjusted by +~25%. Decile 6 bordering on Decile 7
Regional Min. Wage (UMP) -Max for each
Zone Location By Zones
(Figures in M IDR)
Max HH
rive HH income from RMW operty values
23
Multi-Story: FLPP max price per province grouped by 9 zones (above VAT exempt limit of 250M IDR) Low-Rise Vertical: In line with VAT Exempt ceiling for Multi-Story
Landed House: In line with market pricing for affordable housing (above VAT exempt limit)
Self Construction/Reconstruction: Construction cost of IDR 2.5 M/ sqm. X 50 sqm. Built-up Area (Max) Multi-Story and Landed House: New and Existing houses
24
Assistance Calculation for Index
For HH Income of 6M IDR
(1) Max Assistance of 25.8M IDR
(2) Property Value Alternatives: 100M IDR 12.9M IDR 150M IDR 19.3M IDR 200M IDR 25.8M IDR 250M IDR 25.8M IDR
Assistance is the lowerof:
(1) Assistance amount linked to the Monthly Household Income
(2) Assistance amount derived from Assistance Index X Property Value/Cost
BSPS (Perumahan Swadaya) Design Key Characteristics
Characteristics Features Remarks
Type and size of assistance
Rehabilitation (quality improvement)
• Repair roof, floor, wall, and sanitation
• Size of assistance: IDR 7.5 –15.0 million/household (~USD 580 - 1,150/household)
Reconstruction • Build the whole house from the land plot (or existing foundation)
• Size of assistance: IDR 30.0 million/household (~ USD 2,300/household) Beneficiary matching
fund • May be supplemented by beneficiaries’ own funds to cover rehabilitation or reconstruction needs
Eligibility
Demography •• Household Unit
Elderly and disabled people eligible to use max. 15 percent of assistance to pay labor
Income •• Head of HH income at or lower than regional minimum wage Regional minimum wage ranges from IDR 1.1 –3.1 million/month
Asset ownership
• Never have previously owned a house, but own or occupy land physically and hold its legal proof, not in dispute and in accordance with the local spatial plan
• Own a house that in substandard quality Other • First-time receiving assistance from BSPS
Mechanism
Top-down and bottom-up approach
• Central Government establishes policy and technical guideline for BSPS
• Local Government targets the list of priority locations and household beneficiaries Use of community
approach
• Establish a beneficiary group (max of 20 people) to facilitate the cooperation during construction
• Use self-construction method, assisted by facilitator Policy direction influence
location prioritization • Address the slum area (to support the 100-0-100 target)
Facilitation Technical process and
