Newsmaker Interview: Ali Tranghanda

There is a lot of homework to be done to boost the property industry, especially over public housing, the chairman of Indonesian Property Watch tells AmCham Indonesia

By Karmila Bain
Monday, December 18, 2017

The property and real estate industry in Indonesia has seen impressive growth in recent years. From a physical point of view, new housing projects are everywhere with various types of housing offered to different segments of society, with most coming from private developers, but the government also doing its part on public housing.

Ali Tranghanda, Chairman of Indonesia Property Watch (IPW), Vice Chairman of The Housing and Urban Development (HUD) Institute and a member of the Ministry of Public Works and Housing’s expert team, shared his knowledge and experience with AmCham Indonesia.

AmCham Indonesia: How do you view the progress of the Indonesian property market in recent years?

Ali Tranghanda: Over all, the property market in Indonesia is not yet fully mature. There are four important periods. 1990-1998 was the first time the property market in Indonesia was tracked. The property boom in 1995-1996 occurred without strong financial and banking fundamentals, so that when the 1998 [Asian financial] crisis occurred, the property market suffered a very severe blow. At that time banking credit to the property sector soared, but selling prices stagnated. As a result, 1999-2000 did not return to the natural cycle, but was a transitional era after the 1998 crisis.

In the period of 2001-2008, the property market was relatively slow due to the shock of the 1998 crisis. Despite the market decline due to psychological factors, in reality the property business was relatively stable. For 2009-2015, the property market accelerated. Generally, the property market will peak within three to four years after the indication of acceleration, and the boom happened in 2012-2013.

Early warning indicators are the reference for the IPW to be able to read and predict the property market cycle. Unfortunately, many people were less alert when the IPW predicted a slowdown in 2014, and also when it predicted 2015 as the lowest point of the property market. Some of the warnings made at that time were related to the number of developers who entered the upper to luxury segment without taking into account market capacity.

However, in 2016 the property market started taking off again. Early warning indicators, such as GDP growth, inflation, interest rates, property credit growth, KPR [home ownership credit] growth, and property credit are very helpful in order to project the future property market.

Based on the early warning indicators that you mentioned, do you think Indonesia will experience a real estate bubble?

For now, the housing and property market has shifted to the lower middle segment. The increase in property prices in 2009-2012 made the property market vulnerable because the increases were too high and indicated over-valuation.

In Indonesia there will be no real estate bubble, but over-valuation, yes, because Indonesia is still 95 percent domestic ownership – we are currently not really open for foreign ownership, yet. On the other hand, developers cannot raise prices too high again because sales have started to drag. This illustrates over-valuation in the market.

The government is accelerating infrastructure projects. How is this impacting the property industry?

Infrastructure development is the largest government project in Indonesia's history, and estimated to reach Rp 300 trillion, which in turn will have a tremendous impact on the national economy. With the development of infrastructure, the movement of goods and services will be more effective and efficient, so that trade flows can be further improved. It also affects the growth of real estate in Indonesia, where purchasing power will rise and the housing and property market will surely enjoy the results. Indeed, this is what has happened in Indonesia in recent years.

Infrastructure projects undertaken by the government in cooperation with BUMN/BUMD [state-owned and regional-owned industries, respectively] and private parties including toll roads, mass rapid transit (MRT), light trail transit (LRT), railways, and Special Economic Zones (KEK), will have an extraordinary impact on improving the property market in the future.

However, there is one thing that we want to criticize. When infrastructure enters a region, it automatically raises the price of land, but this is not anticipated by the government. Besides creating positive impacts, there are also negative impacts that have not been anticipated by the government. For example, in Lebak Bulus when the issue of the construction of the MRT system was heard by the public, the price of the land there doubled. The land was also not secured, meaning that while the land should be for public housing, it could no longer be built because the price had risen so much. It does not mean that government cannot do it, but the issue here is do we desire to build it or not?

Unfortunately, infrastructure development in Indonesia is not followed by the construction of public housing. Unlike Singapore, where they have what is called a land bank [a large body of land held by a public or private organization for future development or disposal], while we do not.

Public housing in the case of land provision cannot be submitted to the market mechanism because it will lead to uncontrolled price increases. The availability of land banks will be instrumental in controlling the price of land, especially related to public housing. The land bank should be managed by the government, so it can be protected and the price guaranteed to build public housing in accordance with the purchasing power of low-income people.

Based on the results of an IPW survey, the increase in land prices in general will also impact the rise in the prices of land for low-rise housing. Uncontrolled increases lead to a lack of available land at low prices. The government should have a land bank like Singapore, with a freeze approach to land prices to control them, especially for the development of public housing. Otherwise this could leave private developers with no competitors in the market in determining property prices. The current supply is driven in Indonesia where the market is determined by the developer.

What are the real challenges to boosting the property industry?

Housing market fundamentals are still weak. The government needs to be reminded that as Indonesia's current housing and property markets remain weak, this provides room for speculative action. Therefore, in order for market equilibrium to occur, price control instruments, such as the concept of the land bank, must be implemented immediately.

Spatial layout is also a factor supporting the growth of the property industry. In general, spatial layout is about a spatial planning system [methods and approaches used by the public and private sector to influence the distribution of people and activities in spaces of various scales]. Unfortunately, the government’s still lacks commitment to spatial planning. We should be able to imitate the good policies of neighboring countries. The government should be able to lead the spatial arrangement, avoiding overlapping regulations so that the world of “tata ruang” [spatial] does not change into [the world of] “tata uang” [money].

Nonetheless, the spatial plan in Jakarta is good and well regulated, but in some areas it is still unclear.  No wonder this makes it difficult for the provision of land for the construction of simple homes or public housing. Some parties suggest creating a separate zone for the development of affordable houses with a certain composition, so that the availability of land for the construction of public housing can be secured and integrated with the land bank.

There are bureaucratic licensing problems in the disbursement of urban development where the licensing process takes time, and there are still many illegal levies demanded by irresponsible persons. However, Economic Policy Package VIII has overcome various illegal levies in the licensing process.

Do you think pro public housing programs such as Sejuta Rumah, which was launched by the government in 2016, can really achieve the target?

The program is actually to attract developers to build simple homes with more affordable interest rates.

The development of the million homes [Sejuta Rumah] program still has a lot to be improved, but it has helped many developers to build the simple homes that the low income sector needs, and the government has raised the housing budget for 2017, although at a very limited level. IPW considers that this program should be more conceptualized and have a clear vision and not just be another government program.

Based on analysis conducted by IPW, we believe that in the next three years the program will be sustainable. However, the increasingly limited land bank owned by small developers who build houses with housing financing liquidity facilities (FLPP) means that after the land runs out, the small developers have difficulties in securing appropriate land for simple housing because the price is too high. This shows the fundamentals of the national housing market are still very weak.

How do you view the state of Indonesia’s property industry, and what should be the next step for players?

Looking at the conditions, the government has a lot of homework to be done to create healthy housing market conditions for public housing and non-public housing [commercial] to go hand in hand. I would suggest the government starts making a grand strategy and drafts a blueprint for a national housing system based on market data, so that the policy direction is measurable.

The direction of development often does not take into consideration the capacity and market needs of each region, resulting in misdirected goals. Also, there is a mismatch in the housing market between supply and demand.

The million homes program is still far from fulfilling public housing needs in Indonesia, because most of it is still handed over to private companies, and therefore there is no provision of housing that really can be called public housing, yet. I recommend the government secures long term financing for the public housing market and mandates a price control instrument to prevent unlimited market speculation.

Perhaps the government should set up a lighter licensing bureaucracy system with less of a burden on the businessman. Then integrate the public housing and property sectors for balanced development.

In the end, we hope that the national property market will keep giving a positive contribution to the country, not only to the upper middle segment, but also for public housing to grow.

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