The Urgency of Extending the HGB Period

October 15, 2020

The 30-year validity period of Building Rights Title (HGB) certificates has made vertical housing, apartments or flats unpopular in Indonesia. Young people, as first-time home buyers, prefer landed houses with a Certificate of Ownership (SHM) even though the location is far from the city center.

The commemoration of World Habitat Day with the theme Housing for All: A better Urban Future on October 5 should be a momentum to make vertical housing or apartments attractive. This is because, compared to the Certificate of Ownership (SHM) which has no limit on the validity period, the HGB validity period is too short.

There are at least three reasons why the validity period of HGB certificates in Indonesia needs to be extended. First, the extension of the HGB validity period makes vertical housing more attractive. Moreover, land availability is unlikely to increase and landed house prices in urban areas tend to continue to soar.

The World Bank's Time To Act report, released in 2019, shows that Jakarta's house price per income ratio is 10.3. This is higher than even London (8.5), New York (5.7) and Singapore (4.8). Vertical housing addresses the need for housing and land constraints at the same time.

The Indonesian government can emulate Singapore's policy. Singapore's State Lands Act stipulates an apartment ownership period of 99 years since 1967. Hong Kong's apartment ownership period is also more progressive than Indonesia's, at 75 years.

As in Malaysia, the shortest validity period is 30 years. However, they already have alternatives of up to 60 years and 90 years. In Indonesia, the maximum HGB period stipulated in the 1960 Basic Agrarian Law needs to be extended to or close to 99 years. This is because, although the validity period is 30 years and can be extended by 20 years, the total validity period of 50 years is still shorter than the three countries.

The longer validity period of the HGB certificate makes young people more confident in buying an apartment. The apartment unit can still be passed on to the next generation. The Jakarta Property Institute survey at the end of last year found that 46 percent of 300 productive-age respondents said they were still reluctant to buy apartments. One of their biggest reasons is the HGB certificate status which is only 30 years. This shows that there is demand, but it is hindered by the short validity period of the HGB.

Second, extending the validity period of HGB certificates preventsurban sprawl. The ownership period of apartments is approaching 99 years, so more people will choose to live in apartments close to the city center. So, they are no longer forced to choose landed houses in the suburbs, the main trigger of urban sprawl. The city will also benefit because its spatial planning and land utilization will be more optimized.

Moreover, government housing development programs are often located far from the city center, such as Balaraja in Banten or Tambun in West Java. Many people buy these houses but do not live there. The houses that have been bought are rented out, while the owners continue to live in Jakarta by renting houses near their work locations. This not only causes urban sprawl, but also depletes agricultural land.

Extending the validity period of HGB certificates is also an opportunity for the government to utilize land assets that have been idle. Vertical housing must be built on land that has not been optimally utilized. Once rowed, two islands are surpassed. This will increase housing supply and public confidence in apartments. Having housing is everyone's right, and housing does not have to be a landed house. Flats are also housing. The government is tasked with being the facilitator.

Third, extending the validity period of the HGB certificate makes the supply of apartment units absorbed, especially by prospective first home buyers. That way, the supply of vertical housing will also be absorbed by direct residents and not just investors, which leads to skyrocketing housing prices.

Land prices in urban areas are almost impossible to go down and land availability is impossible to increase. Meanwhile, housing needs tend to continue to increase because there will always be a new workforce that needs a house every year. This year alone, the difference between housing needs and availability (backlog) according to the Ministry of Public Works and Public Housing reached 7.64 million units in Indonesia.

That means that landed houses with exorbitant prices are no longer an option, let alone a mainstay. In order to achieve the mandate of World Habitat Day, the concept of community housing in urban areas must shift to vertical housing. It is time to make housing a basic right that every citizen should have. The extension of the HGB validity period from 30 to 90 years is one solution.

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