Constructing Robust Mortgage Markets in Indonesia
Project Development Objective (PDO)
This project is designed to help the government of Indonesia (GoI) introduce a new mortgage subsidy policy, re-engineer the existing Housing Finance Liquidity Facility (FLPP), and launch a new contractual saving scheme to improve access to housing finance for the underserved and low- and informal-income households.
Indonesia has a substantial housing deficit, especially among lower-income and informal residents. More than 16 million households currently live in inadequate housing. Although the regulatory framework is prudent, low affordability, nascent market information, and incipient long-term funding instruments restrict sector growth. Approximately 80 percent of Indonesians cannot access mortgage finance because of their inability to provide credit history or make a down payment and because of unaffordable loan terms.
The FLPP (Fasilitas Likuiditas Pembiayaan Perumahan) is the main instrument used by the GoI—through the Ministry of Housing—to channel the housing finance subsidy policy. FLPP is a highly subsidized structure that relies exclusively on the government budget. FLPP transfers the resources received by the government to the implementing banks, thereby providing long-term funding together with partial mortgage insurance. However, FLPP’s current structure impedes many banks from participating, benefits only a small part of the population (formal workers with a middle income), and has a 30 to 40 percent applicant rejection ratio.
Appropriate policies that address funding instruments, affordability issues, and the targeting of subsidies can enable sector growth in housing finance in the short and medium terms and expand access to mortgage finance.
The activities and outputs of the proposed project are as follows:
1. A technical report to guide the revised subsidy policy to develop the mortgage markets
2. Technical advice on the recalibration of the existing FLPP instrument
3. A new savings-subsidy housing finance (SSHF) scheme that increases access to housing finance
for low-income and nonsalaried households
4. Technical advice on the draft legislation establishing the provident fund for housing (Tapera)
The expected outcomes of the project in the short term are as follows:
1. A better understanding of the effectiveness and pitfalls of the current subsidy policy
2. Approval of the roadmap to reform the FLPP program, the SSHF policy, and institutional
The expected outcomes of the project in the medium term are as follows:
1. A new mortgage subsidy policy issued (adoption of recommended modifications in regulations,
amendments, and codes)
2. FLPP reengineered by adopting a new governance structure, thus using new financial instruments
to raise funding in capital markets, to adopt new subsidy instruments, and to attract new lenders
3. The new SSHF scheme launched
4. Increased availability of long-term capital for mortgage lenders
5. Increased savings for low-income and informal workers and households
6. Increased access to housing finance for the underserved low-income households