Property developers have expressed concerns over “thinning” funds allocated to the government’s subsidized housing loan as they bank on public housing programs amid a broad-based slowdown in the property sector.

Four property business associations wrote in a press statement on Jan. 23 that the 2020 budget for loans under the Housing Financing Liquidity Facility (FLPP) only amounted to Rp 11 trillion (US$805.57 million), which was enough for 97,700 units. That is much lower than the Rp 29 trillion needed to fund housing needs of at least 260,000 units this year, the group said.

They estimated that the funds would be used up by April because of the exorbitant housing backlog. The business coalition consists of the Indonesian Chamber of Commerce and Industry (Kadin), Real Estate Indonesia (REI), the Public Housing Developers Association (Himperra) and Developers Indonesia (PI).

“The housing backlog is dominated by the social segment [of people] earning less than Rp 7 million, whereas the housing fund allocation for this segment remains limited,” said the acting deputy chairman of Kadin’s property division, Setyo Maharso.

“The sustainability of the property industry stability needs to be maintained — one way to do that is through a higher FLPP quota and alternative substitutes.”

The property sector, which has seen growth of around 3.5 percent in the past few years, relies on subsidized housing programs, which account for half of the industry’s revenue, according to REI members’ data.

The FLPP was initially designed for loans to civil servants, military personnel, police officers and private employees with a monthly income no higher than Rp 4 million, but that figure has since been raised to Rp 8 million.

REI chairman Paulus Totok Lusida said the prospect of Indonesia’s property industry going forward would depend on government housing subsidies, since an uptick in the segment would automatically create higher demand from the middle-upper segment.

“The annual revenue of the property sector is Rp 1,000 trillion. If the [FLPP quota issue] is not properly solved, it will affect our economy as a whole,” he added.

Property developers argue that failure to keep funding the FLPP scheme would break President Joko “Jokowi” Widodo’s promise to build around 1 million houses a year. The target, in place since 2015, aims to reduce the country’s housing backlog, especially for the benefit of lower-income families.

Jokowi, however, said on Friday that his administration would not only resume the 1 million-houses program but aim for 1.25 million houses this year.

Since 2015, around 4.8 million houses have been constructed — 699,770 in 2015, 805,169 in 2016, 904,758 in 2017, 1.13 million in 2018 and more than 1.25 million in 2019.

"We will increase the budget allocation [for the FLPP]. I've ordered it myself," Jokowi said, rejecting concerns that the FLPP budget would be used up by April.

While waiting for the budget increase, the four associations have suggested alternative funding sources. One way is to take funds from unabsorbed regional budgets and “off-target” subsidies, citing the 3-kilogram liquefied petroleum gas (LPG) subsidy as an example.

The associations suggested that the Public Works and Housing Ministry divert its other housing assistance programs toward the scheme. They also pushed for more funding from the Workers Social Security Agency (BPJS Ketenagakerjaan) and state-owned mortgage financing company PT Sarana Multigriya Finansial to help finance the scheme’s expansion.

The group is lobbying officials and the House of Representatives for similar solutions.

The Public Works and Housing Ministry had met with the associations’ executives, said Housing Financing Director General Eko Djoeli Heripoerwanto, adding that his team was reviewing the request.

“I’ve already acknowledged that there’s an insistence,” Eko told The Jakarta Post.

But Housing Financing Management Agency (LPDPP) president director Arief Sabaruddin refuted the group’s claims about a “thinning budget”. He said the budget allocation for the scheme had steadily increased in the past years while any subsidy cuts this year would-be removed interest rate difference subsidies (SSB), not FLPP.

The agency’s data show that the budget allocation for this year is Rp 11 trillion, up from Rp 7.1 trillion for 2019 and Rp 6.01 trillion for 2018. However, actual spending had been lower because of issues to do with “administrative preparedness” and “document incompleteness'', Arief said.

PT Sarana Multigriya Finansial would contribute around Rp 3.7 trillion to the scheme this year, Arief said, after having disbursed Rp 1.7 trillion for the program in 2019. A new savings-based financing assistance would also help bolster access to public housing for low-income households, among other types of housing assistance.

He said he saw potential to work with BPJS Ketenagakerjaan as a financing source but argued the government had already made precise calculations on budget allocations based on the country’s fiscal ability.

However, he still pushed regional authorities to alleviate the central government’s financial burden to fund the housing scheme, as FLPP projects also took place outside the capital.

“We all have this mindset of adding more [housing quota], including businesspeople. What we have to ponder now is how to solve not only surface-level problems but also their roots, which is the limited financing source,” Arief said.

“That’s why we have to think about how to dig up other financing sources, so that we have a long-term solution.”

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