There have been many discussions regarding the low-cost apartment program, known as Rusunami.
This program was launched in 2007 with the target of building 1000 low-cost apartment blocks, approximately 470,000 units, for middle-low income buyers in major urban areas by 2011 via the development of subsidized and non-subsidized low-cost apartments.
Rusunami as defined by a 2007 ministerial decree is a low-cost apartment development with a maximum size of 36 square meters (sqm) for a 2-bedroom unit and a capped price of Rp 144 million. The target group for the Rusunami program are families and individuals with a monthly income of less than Rp 4,500,000.
The aim is to provide affordable housing in locations close to workplaces within or close to city centers.
Currently, affordable housing comes mostly in the form of landed houses located in city fringes leading to lengthy commutes and high transportation costs. It is also having an impact on employee productivity. The development of vertical housing within or close to city centers is a logical and viable alternative.
The Rusunami program also includes a number of government incentives to encourage private sector participation such as permits and administrative assistance, special tax rates and basic infrastructure assistance. Eligible buyers are provided incentives such as a 10 percent VAT exemption and subsidized down payments and mortgage rates.
Currently, there are a total of 40 Rusunami projects being proposed, planned and developed in the greater Jakarta area. These projects are targeted for completion between now and 2012. The total potential stock from these developments is estimated at about 60,000 units.
The supply target stated under the 2009 decree for Jabodetabek is 62,688 units, while research on actual supply indicates that the estimated supply in 2009 is only 6000 units, far below the target figure.
What is there a supply shortfall despite the numerous incentives?
The standard (maximum) price of Rusunami is regulated by the government. In the two years since the program launched in 2007, the standard unit price level has remained unchanged despite frequent calls from developers to increase the price.
This price regulation creates a challenge to develop a Rusunami development in the city that adheres to the governments fixed-price system and is still financially feasible. In many instances, developers impose a surcharge on the unit price or combine it with mixed-use development. The amount of extra or additional price surcharge varies between regions and projects. Among all existing developments, there are only two projects (the Prima 1 Rusunami located in Pulogebang and the Kemayoran A3 project) that do not impose surcharges on the unit price.
Apart from a unit price adjustment, another strategy to create a financially viable development would be to lower the land acquisition price. There have been a number of discussions regarding the optimization of government-owned land held by state enterprises by becoming part of the Rusunami program.
However, most SOEs are bound by regulations covering the utilization of their real estate assets at only a minimum of the so-called tax object selling value, locally known as Nilai Jual Obyek Pajak (NJOP), as stated in the annual land and building tax code (PBB).
As NJOP value closely tracks the market value, there has been limited implementation through this mechanism due to the lack of financial viability. Another mechanism to optimize SOE assets is through a long term lease, however the uncertainty of title ownership, which is reflected in the pricing, indicates that the project would be less attractive compared to a landed house.
With the combined challenges of fixed unit prices and difficulty in acquiring land cheaply enough, developers have started to shift to Anami (owned low-cost apartment) developments.
This type of development, although devoid of any government incentive, is not bound by price regulations. Therefore the pricing structure is more flexible while still targeting the middle-low class segment and also able to provide affordable vertical housing.
Despite the many issues and challenges, Rusunami development is generally seen as an important alternative form of urban housing catering to the middle-low class segment which constitutes the majority of Greater Jakarta's population.
Any successful Rusunami project would require a concerted effort from the government, both central and local authorities, and the private sector's participation. The Rusunami program represents a wonderful opportunity for both the public and private sector to work together to create a better quality of life for all and fulfill their professional and moral obligations to society.
Rusunami developments also have to adhere to typical real estate development principles combining a strategic location, competitive land acquisition cost, good infrastructure and availability of public transportation, and correct pricing strategy.
The writer is the head of strategic consulting department
