Subsidized housing comes with add-on charges

The Jakarta Post ,  Jakarta   |  Wed, 10/15/2008 10:28 AM  |  City

"It is an affordable housing (state-subsidized) apartment, so, as regulated by the government, we sell the unit for Rp 144 million (US$14,700)," a property agent told The Jakarta Post recently.

"It comes with a swimming pool, a parking lot and elevators," she added.

Sounds great so far -- then she mentioned the "upgrade charge" of between Rp 9 and 14 million, added to the down payment, depending on the size of the unit.

Add to that the fee of around Rp 9 million in exchange for a particular floor or certain view in the subsidized apartment, known as a rusuna, and it becomes rather pricy.

"It is more like a private rental than affordable housing, so it is more comfortable, it's better. You cannot opt out from the charges because it comes as a package," she said.

After making several more queries with other developers, it becomes clear that this is common practice among the rusuna sellers.

Rusunas are a new property trend in Jakarta. Half of the 1,000 towers the government has pledged to build by 2010 will be in Jakarta. In Greater Jakarta this year, some 75 towers have gained building approval, 38 of which are already under construction, according to the Public Housing Ministry. Some 118 more are in the planning and approval stages of the process.

The government aims to build affordable housing in major city centers across Indonesia to maximize land use and reduce workers' traveling time. It has urged local administrations and state-owned companies to cooperate with developers and use strategically located land for the buildings.

This new affordability in desirable vicinities enticed Arie to buy a unit in South Jakarta.

"I chose a higher level, so I paid an extra Rp 10 million for it. I do not mind; it is still cheap considering its prime location in the city," she said.

Indeed, many buyers are not bothered and the units sell as soon as they are put on the market. Wira Agus, a senior manager at the consulting firm PT Property Advisory Indonesia, said 90 percent of the apartments had already been sold.

However, for many targeted by the scheme -- people with a monthly income of between Rp 1.5 and 4.5 million -- the extra costs are a substantial burden.

Ayi Robiana, a mother of three, found the increased price overwhelming. Although she falls within the targeted income group, the additional expenses left her family with little to spare. Adding Rp 10 million to the down payment was too much for her family. It prevented them from buying the apartment, which instead fell into the hands of wealthier people.

Observing the trend, Wira said there were no restrictions on selling the units to higher-income groups outside of the subsidy scheme.

Head of the City Housing Agency, Agus Subardono, is aware of the situation, but said there was little his office could do.

"The price cap should be Rp 144 million, but the city administration does not have the authority to limit it. It needs to come from the Public Housing Ministry," he told the Post.

He suggested that the subsidies given by the government should only be allocated for each particular subsidized unit.

The head of the affordable housing division of the formal housing unit at the Public Housing Ministry, Bernaldy, was also aware of the situation and the lack of regulation.

He said the ministry was working on getting more detailed regulations out by the end of the year and proposed mixing subsidized and unsubsidized units within each block.

"The prices of materials have risen but the selling price is capped. So to make the project still attractive to developers, we may use cross-subsidy methods," he said.

Under the scheme, developers could mix subsidized units with commercial units. They would still enjoy full government incentive packages, including easier approval for building permits, reduced taxes and privileged access to piped water and electricity.

In addition, the government has put aside a budget to help build public utilities, such as road and lighting connections for the buildings, if needed.

"We are looking at 60-70 percent subsidies."

But for now, there are a lot of choices for consumers to pick from, Bernaldy said.

"We think swimming pools are not a necessity. But the developers may want to attract buyers with such additional features. Then it is up to the consumer to choose; there are a wide range of rusunas on the market -- some have additional features, others do not."

Ibnu Tadji, head of the Indonesian Association of Apartment Unit Owners, warned that price manipulation was not the biggest problem facing buyers.

"There are no clearly detailed regulations regarding the rights of apartment tenants. This includes ownership laws, control over apartment management and even buying-selling clauses.

"Sometimes buyers have not even seen the contract, even though they have started their installment payments," he added, giving an example of a recent complaint his organization received from a rusuna buyer.

"I say Indonesians are not ready for the 1,000 tower program if these problems have not been addressed. You have to be prepared to take risks if you sign one of those contracts."

The ministry admits there are several regulations yet to be made regarding freeing land, tax breaks, building designs, electricity and water rates and monthly charges. (mri)

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