Real Estate Indonesia (REI) has expressed optimism about the housing market’s prospects in 2025, particularly in the affordable housing sector.
This positive outlook is driven by the Indonesian government’s ambitious plan to deliver 3 million housing units annually, spearheaded by President Prabowo Subianto and Vice President Gibran Rakabuming.
Bambang Ekajaya, Deputy Chairman of REI, highlighted that the initiative is promising, especially with plans to increase the allocation for subsidized housing under the Housing Financing Liquidity Facility to 800,000 units in 2025.
“With the proposed Housing Financing Liquidity Facility reaching 800,000 units and the extension of the VAT exemption for buyers (PPNDTP), the outlook is even more favorable,” said Bambang, as reported by Kontan.co.id on Sunday, December 22, 2024.
Key Challenges in Budget and Policy
Despite the promising initiatives, REI noted significant challenges, particularly the limited budget allocated to the Ministry of Housing and Residential Areas, which stands at just IDR 5.07 trillion. Bambang warned that insufficient funding could hinder the realization of the 3-million-unit annual target.
He emphasized the need for the Ministry of Finance to provide adequate funding, especially for subsidized Home Ownership Credit schemes.
In addition to budgetary constraints, the property sector faces a 12% Value Added Tax (VAT) policy set to take effect next year, along with declining purchasing power among consumers.
“Although the VAT exemption applies to ready-to-sell properties, the majority of non-subsidized buyers will still be subject to the 12% VAT,” Bambang explained.
REI has called on the government to take an active role in fostering property sector growth. This includes fiscal incentives and policies that ensure the sector’s sustainability.
“We hope the government can extend more support, both in terms of funding and policy, to ensure the property sector continues to grow positively,” Bambang concluded.
Impact of the 6% BI Rate on Property
Meanwhile, Bank Indonesia (BI) announced its decision to maintain the BI Rate at 6% following the Board of Governors Meeting held from December 17–18, 2024. The Deposit Facility rate remains at 5.25%, while the Lending Facility rate is set at 6.75%.
“This decision aligns with the monetary policy direction to keep inflation under control within the target of 2.51% for 2024 and 2025 while supporting sustainable economic growth,” BI stated on its official Instagram account, as reported by Kompas.com.
The consistent 6% BI Rate over the past two quarters is seen as a boon for the property sector. According to Bambang Ekajaya, the stable rate benefits non-subsidized property buyers by offering competitive loan interest rates.
Bambang also praised the Loan-to-Value (LTV) ratio of 0%, which allows developers to offer flexible down payments. However, he urged the government to reconsider extending VAT exemptions for buyers under PPNDTP due to the impending VAT hike.
Proposed VAT Exemptions for Indent Properties
Currently, the VAT exemption benefits are exclusive to developers with ready-to-sell units, typically favoring large-scale developers with substantial resources. Bambang suggested expanding the incentives to include developers offering pre-sale or indent properties.
“This policy needs to include medium-scale developers, even if the VAT exemption is only partial, such as 50%,” he proposed.
Bambang also recommended applying strict conditions for VAT exemptions on indent properties, such as limiting eligibility to developers with a maximum one-year delivery period or a proven track record of reliable projects.
“This concept could mirror the VAT incentives for electric and hybrid cars, where both receive benefits but at different levels. Hopefully, this VAT exemption approach can also be implemented in the property business for both ready and indent properties,” he concluded.
Source: Kontan.co.id, Kompas.com
Image source credit: Mifthahul Afif (pexels.com)
