Spatial Breakthroughs Key to Economic Revival, Housing Fulfillment

October 21, 2020

The Covid-19 pandemic that has been going on for more than six months has hit the economy hard, and Jakarta is among the worst hit. Jakarta's Central Bureau of Statistics (BPS) reported in August that the province's economy contracted by 8.22 percent(year on year) in the second quarter of this year. This figure was worse than the national figure, which was minus 5.32 percent.

However, this does not mean that the DKI Jakarta Government cannot do anything. The property sector can still rise quickly and drive the economy massively. This is because this sector is still possible to invest in during a pandemic due to the characteristics of a long-term oriented developer business model.

Before the pandemic, the Jakarta Property Institute (JPI) estimated that there were around 15 million square meters in the planning stage to be built in Jakarta. This amount is capable of providing around 450,000 job opportunities.

In addition, the property sector can also help fulfill housing needs, which is one of Jakarta's acute problems. This is in accordance with the spirit of World Habitat Day 2020 which will be celebrated on October 5 with the theme Housing For All: A Better Urban Future.

However, the property industry cannot move alone. The DKI Jakarta government must provide a way for this industry to immediately return to turning the wheels of the economy.

Spatial breakthroughs are effective and even profitable for local governments. This policy does not burden the Regional Budget (APBD). In addition, the DKI Government can quickly implement it with massive effects due to the characteristics of the property sector which has a wide multiplier effect . According to Real Estate Indonesia (REI), the property industry has 174 related industries that employ more than 30 million workers in Indonesia.

Spatial and Licensing Issues

The desire of developers to continue their development plans is still high, even during the pandemic. This will happen if the government is willing to make spatial breakthroughs and improve licensing. These two things are the biggest obstacles to the advancement of the property industry in Jakarta.

The main reason that development in Jakarta is hampered is the restrictive spatial policy. This is reflected in the limitation of building floor area reflected in the Building Floor Coefficient (KLB). This restriction limits the supply of housing and contributes to the high price of housing in Jakarta. Another result is that the utilization of land that could have been built as flats is not optimal.

There is actually a mechanism for developers to increase the KLB by paying a fine. However, the price is too expensive, even more expensive than building on new land. As a result, this method is not chosen especially when the economy is sluggish.

Licensing for the property industry is also slow. Last year, Indonesia's Ease of Doing Business ranked 73 out of 190 countries surveyed by the World Bank. One high-rise project, for example, takes at least 21 months to obtain a building permit, according to the Jakarta Property Institute's 2017 findings.

Spatial Breakthrough

To solve the above problems, breakthroughs are needed in the form of ease of licensing and flexibility in applying for KLB increases. Of course, this needs to be followed by certain conditions, such as developers being able to complete construction in two years in response to the need for employment during the pandemic. The review process also needs to follow good urban planning principles without being burdened by a long bureaucracy.

Spatial flexibility is already commonplace in other countries. Singapore's Urban Development Authority (URA), for example, provides KLB bonuses for developers who are willing to follow government programs. One of them is Singapore's downtown revitalization program. Building owners are incentivized to convert old office buildings into hotels or apartments. The goal is to make the area dominated by offices and become a mixed use area so that it is more lively at night.

This kind of non-fiscal incentive was chosen because it is good for the development of the city to be more directed. In addition, a vibrant property industry will also increase tax revenue for the local government.

This incentive does not always have to be free. Local governments can still apply fees for KLB increases. However, the amount of the fine is adjusted so that it is still quite attractive and reasonable for developers' calculations.

Therefore, local governments must be quick and responsive in providing policies in the form of breakthroughs in licensing and spatial planning. This effort can not only revive the slumping economy. The policy also increases the availability of housing that makes it more affordable, in line with the spirit of the World Habitat Day celebration, namely housing for all and a better urban future.

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