T

o support the government'€™s 1 million houses program, the Public Works and Public Housing Ministry will allocate an additional Rp 1 trillion (US$71.3 million) this year for a mortgage interest subsidy program for low-income people.

Public Works and Public Housing Minister Basuki Hadimuljono said on Monday that the additional funding would be taken from the ministry'€™s public service agency (BLU) budget, adding that the plan had been approved by President Joko '€œJokowi'€ Widodo.

'€œThe mortgage interest subsidy program is similar to the FLPP [housing loan liquidity facility]. Since the budget allocated for the FLPP was fully disbursed in July, we decided to provide additional funding to increase the availability of affordable homes for low-income people,'€ Basuki told reporters during a seminar on housing.

FLPP is a government-backed mortgage program, for which the government subsidizes 7 percent of the total 12 percent commercial interest rate, allowing low-income people to pay only 5 percent interest with installments of up to 20 years.

The government allocated Rp 5.1 trillion of the 2015 state budget for FLPP.

In the draft 2016 state budget, the budget for the public housing sector reached more than Rp 13 trillion. A total of Rp 9.2 trillion will be allocated for the FLPP program, Rp 2.6 trillion for the mortgage interest subsidy program and Rp 1.3 trillion for down payment assistance.

The government plans to build one million houses annually to reduce housing backlog by providing affordable housing for low-income people. Data from the ministry said that housing backlog amounted to 13.5 million units as of 2014.

Of the 1 million homes to be built for low-income people this year, the government will be responsible for building 603,516, while private developers will construct the remaining 396,484.

The ministry'€™s director general of housing, Syarif Burhanuddin, said that as of August, the government had begun constructing 472,495 houses from the total target of one million houses this year.

'€œWe are very optimistic that we can achieve the target by the end of this year,'€ Syarif said.

Syarif added that the number of houses under construction as of early August was around 300,000 and the number increased to 472,495 within two weeks nationwide.

'€œDemand for commercial houses for non-low-income people dropped 40 percent. However, demand for affordable houses for low-income people is steady, therefore the government should ensure the availability of the houses,'€ he said.

In addition to giving interest subsidy for housing, the government also subsidizes lending for micro loans provided under the subsidized-micro loans (KUR) program.

The government recently slashed the interest rate for microloans to 12 percent from the previous 21 percent for all KUR types.

Under the new rate, the government will provide an additional interest subsidy of 7 percent for micro KUR and 3 percent interest subsidy for retail KUR.

The Finance Ministry will allocate funds of around Rp 900 billion from the revised 2015 state budget to cover the subsidies until year-end.

The loans are channeled through state-owned Bank Rakyat Indonesia (BRI), Bank Mandiri, Bank Negara Indonesia (BNI), private-owned Bank Internasional Indonesia (BII) and Bank Sinarmas, as well as six regional development banks (BPDs).