Indonesia property developers look forward to red tape cuts

Jakarta. Property companies are looking forward to government regulations which would reduce red tape and cut licensing costs for building medium to low income residential housing.

The government has been urging property developers to support its program to build 1 million houses a year since 2014, in an effort to battle shortages in the country’s housing market, particularly among lower income people.

But, developers have complained the licensing and tax administration are complicated and consumer almost a fifth of total costs for any development. In effect, developers prefer to build more expensive residential buildings which have higher margins, rather than pass through the same byzantine bureaucracy for slimmer profits.

Only 400,000 houses had been built under the program by the end of October, data from the Ministry of Public Works and Public Housing showed. This is a significant drop from last years 670,000.

In August, the government launched another plan to cut the variety of housing permits by two thirds to just 11, down from the previous 33, although this is yet to see fruition.

“We are still waiting for government regulations permitting the construction of housing. The policy will have an impact on time and cost of licensing,” said Edy Ganefo, the chairman of Indonesian Association of Realty Developers (Apersi).

“Today, permits for homes for low-income communities and commercial houses are difficult.”

Heri Eko Purwanto, director of housing financial planing at Ministry of Public Works and Public Housing, said a draft for a new presidential regulation simplifying housing permits is currently under review at the State Secretariat.

“It will be issued in not too distant future,” Heri said.

He said the estimated licensing costs for new housing projects — which often sit around 10 to 20 percent of total construction costs — would drop by 70 percent once the regulation comes into effect.

“The policy is aimed at achieving the target of 1 million homes, because reduced licensing fees would boost houses availability, especially those of low-cost,” Heri said.

Indonesian households waiting rent a home sat at around 7.6 million in 2014, with the government hoping to push that down to 5 million by 2019.

The shortfall in supply is expected to fall from 13.5 million units in 2014 to 6.8 million in 2019. The ownership list exceeds the rent list as prospective buyers often prefer to purchase investment properties to rent to others.