Indo public low cost housing - CLSA

Building low income housing units is a top priority for many emerging markets in Asia (especially true looking at the recent turmoil in the Middle East ). Andy Rothman notes that China’s plans to build 36 million affordable homes over five years.

In Indonesia, the world’s 4th most populous country (population is growing at 1.06% per year) and has to prepare at least 710k houses annually to meet demand. In 2007, the government here has set an ambitious target to build 1,000 towers (500-600 unit / tower) of Rusun (Vertical Houses) within five years. Unlike China with their Social Housing program that can be finished faster than expected (easier access to bank funding), Indonesia just built 113 towers with only 37% of it delivered to customers.

However, our Komodo analyst Mita notes that changes in govt policy means should help accelerate the build out program. Previously, the govt set the selling prices so developers did not have much room to profit. The new scheme does not set a ceiling for prices. Instead the government through BTN and other banks will provide a max of Rp130m loan for apartments and Rp80m for landed houses with a fixed interest rate. The new scheme also calls for mortgagage rate to be fixed until maturity now.

Cost of mortgage/funding is no doubt one of the biggest driver for property markets anywhere in the world. Despite headline news that Indonesia is raising its benchmark interest rate, it is interesting to note that short term rates has actually came down instead of up. The MOFs first issuance of 3 month T-bills yielded 5.2% last week which is 155bps below 1 month SBI reference rate. Even at latest SBI auction yielded 6.37%, 38bps below reference rate. Clearly, the market is calling for lower risk premium for this market. - see below comment for detail

Key points from report:
Govt estimates the country needs at least 710k houses a year, with the current shortage for houses now at 8m units
In 2007, govt started a project to build 1,000 public housing buildings in 5 years; 3 years on, they have built only 113 towers, and delivering only 37% of that.
To qualify for a Rusunami (subsidized apartments), the applicant needs a Tax ID, has to be a first house, and earns up to Rp4.5m (US$517/month)
Of the 19 people interviewed, 42% said they want to start their own family, while 37% is because it is a good location
Direct beneficiaries for the govt’s 1000 project are cement companies (SMCB IJ, INTP IJ) property developers (ELTY IJ, APLN IJ)
Indirect beneficiaries of the new-living style include consumer goods and banks (BTN IJ)