Housing for all is still one of the government's eternal ideals that continues to be fought for to this day. In Jakarta alone, the need for public housing each year is around 800 thousand to 1 million units according to the Ministry of Public Works and Public Housing. That number is equivalent to almost 15 percent of the total national need which reaches 6.8 million . The large housing needs then gave rise to various programs in each government. One of them is the One Million Houses Program of President Joko Widodo's administration.
The problem is, these various programs cannot directly address housing needs. The government is only able to build around 20 percent of the housing needs for low-income people. Another 30 percent portion is in the form of subsidized houses built by developers with a housing finance scheme. The remaining 50 percent, and the largest portion, is built by developers and communities independently, without receiving government subsidies.
That means, the costs and licenses for the land purchase process until the house is built are not assisted by the government.
To build a house, licensing is the upstream of a series of processes that developers or communities must go through. For communities or individuals, building a house starts with owning the land. The process can be from buying and selling transactions or inheritance. Next, they apply for a Building Permit to the local government before starting the house construction process.
For developers who want to build on a large piece of land, such as 5,000 square meters or more in Jakarta, the process is not as simple. Land acquisition for developers starts with obtaining a Location Permit. The legal basis is regulated in the Regulation of the Minister of Agrarian and Spatial Planning/Head of the National Land Agency Number 19 of 2017 concerning Amendments to the Regulation of the Minister of Agrarian and Spatial Planning/Head of the National Land Agency Number 5 of 2015 concerning Location Permits.
At a parallel level, Location Permits are also regulated in the Minister of Home Affairs Regulation Number 3 of 1987 concerning the Provision and Granting of Land Rights for the Purposes of Housing Development Companies. The policy regulates the provision and granting of land rights for the purposes of housing development companies. The regulation also authorizes regional heads to issue location permits with land area provisions.
Simply put, a Location Permit is an attempt to notify the government that a developer will purchase, acquire or acquire land in a particular location. As long as the permit has not been issued, the developer is prohibited from carrying out the acquisition process for the planned land. From the government's side, the Location Permit is an effort to control and supervise land acquisition activities in its area.
"Ease of licensing encourages the reduction of
the gap between the availability of houses
with the number of people who need it"
A. Convoluted Location Permit Processing Impedes Land Acquisition
In Jakarta, due to a delegation of authority, the issuance of Location Permits is the authority of the governor. In at least five gubernatorial decrees and one gubernatorial regulation, a Location Permit is called a Land Acquisition Principle Approval Letter or SP3L. The essence of both terms is the same, developers must obtain a Location Permit or SP3L before acquiring, acquiring or purchasing land.
The difference with the central government is that the requirements for obtaining a Location Permit in the capital city are more stringent. For example, Governor Decree Number 11 of 1972 regulates that SP3L applications must be made for land with an area of more than 5,000 square meters. Meanwhile, the Location Permit Regulation states that land with an area of less than 10,000 square meters does not require a Location Permit.
Another difference is the validity period of the Location Permit and SP3L. The Location Permit is valid for three years according to the Location Permit Regulation. Governor Regulation No. 209/2016 on Permits and Recommendations for Space Utilization limits the validity period of the Location Permit to six months. Unfortunately, the same regulation does not mention the time required for the permit.
During the validity period of the location permit, the developer conducts land acquisition. The process can be short if the land parcel to be purchased or acquired is owned by one company or one person. Conversely, the story will be very different if the land to be acquired is owned by multiple parties. This means that the negotiation process must be carried out one by one with the landowner.
The Location Permit or SP3L contains the detailed location of the land to be acquired, the area of land permitted to be acquired, and the development plan. Location Permits in Jakarta can be extended if land acquisition has not been completed when the validity period expires. Governor Decree No. 138 of 1998 on the Procedure for Application and Settlement of Principle Approval for Land Acquisition for Foreign and Domestic Investment Companies in DKI Jakarta allows the validity period of SP3L to be extended twice in 12 months.
A.1. The Longer the Location Permit is Obtained, the More Expensive the Selling Price of Housing
Although it can be extended, developers actually do not want protracted land acquisition. This is because land acquisition that is delayed from schedule and the obligation to extend the validity period of the Location Permit, results in changes in planning and additional costs from the developer's side. The allocated land purchase budget has the potential to swell due to an increase in the Tax Object Sale Value (NJOP).
The supply of land will not increase, while the need for housing will continue. That is why each plot of land is unique and its location is often the selling point offered by developers. There are no plots of land with the same characteristics even if they are in the same location. At the same time, environmental conditions also change due to the economic development of an area. These changes then become one of the factors for the government to increase the NJOP.
NJOP is actually the basis for calculating Land and Building Tax paid by taxpayers on their land assets. The DKI Jakarta government through governor regulations annually sets the NJOP based on the potential development of the region. The value historically tends to increase every year. In a land sale transaction, the owner almost certainly checks the NJOP of his land as a reference for determining the price. Although it cannot be denied, the land price that is finally agreed upon tends to always be above the NJOP.
The slow progress of land acquisition and the increase in NJOP have caused the capital expenditure for land purchase incurred by developers to increase. The increase in capital expenditure is reflected in the selling price of the housing they build later. The longer the land acquisition process, the higher the land price. This increase in land prices is ultimately borne by the people who will buy houses. In the simplest calculation, no seller chooses to lose money. The land acquisition part is the first part that causes the high price of housing in an area.
Not only for land, the purchase of property that is already certified and comes from one owner is also still subject to the obligation to make a Location Permit. This requirement should be eliminated because there is already a legal basis of ownership, namely the certificate. The obligation to obtain such a Location Permit will increase transaction costs that will be charged to buyers.
The DKI Jakarta government applies sanctions for developers who acquire land without a Location Permit. The government regulates three alternative sanction provisions for land acquired without SP3L.
The first alternative is that the governor can take control of the acquired land and determine its future use. The second alternative is for the governor to reserve the land for another party. The last alternative is that the developer is given the opportunity to apply for SP3L for the land with requirements that refer to the Governor's Decree No. 540/1990. Governor Decree Number 540 of 1990 .
If running the third alternative, the developer is also subject to other additional obligations. The first obligation is to finance and build low-cost flats based on Governor Decree No. 540/1990. Governor Decree No. 540 of 1990 .
A.2. After Obtaining the Location Permit, the Developer is Still Subject to Various Other Obligations
After the Location Permit, which is a requirement for land acquisition, is issued, the DKI Jakarta Government imposes additional obligations on the developer. In order to be allowed to acquire land, the developer is required to finance and build low-cost flats equivalent to 20 percent of the commercial area of the land for which the SP3L is requested. The location, type of flats, and criteria are determined by the governor.
The developer's obligation upon the issuance of the Location Permit is to finance and build low-cost flats covering 20 percent of the total commercial area of the land. Not only building low-cost flats, they are also subject to additional obligations which refer to Governor's Decree No. 540 of 1990 . Developers are also required to first finance and build environmental facilities and infrastructure. The governor determines the location, type and criteria for the three additional obligation points.
Do you still remember the potential for inflated residential development costs due to protracted licensing? Additional obligations also generate the same potential.
Additional obligations in the form of building flats for low-income people actually increase the capital expenditure burden that must be borne by developers. Even so, the obligation is not a problem as long as it is guaranteed to be effective in reducing the number of housing needs. In Jakarta, the implementation of this obligation and the handover of flats and their facilities to the government is not that easy. There is a series of bureaucracy that must be passed before these facilities are registered as government assets. Not to mention the matter of handover which is hampered due to limited maintenance personnel from the DKI Jakarta Government after the asset is handed over.
That is why, the effectiveness of the implementation of Governor Decree Number 640 of 1992 is still questionable. As of February 2017, the DKI Jakarta Government announced receivables in the form of assets and fines worth Rp 11.8 trillion. . The value is an obligation that must be paid by property owners for the issuance of SP3L and Land Use Designation Permit (SIPPT) since 1972 in the form of flats and public facilities and infrastructure. The receivables were mentioned as a note by the Supreme Audit Agency on DKI Jakarta's 2015 financial report, which received an unqualified opinion.
A.3. Without Land from the Government, it is Difficult for Developers to Build Flats
Local government receivables arise due to several causes. First, it is difficult to find land in the capital city. Developers are required to build low-cost flats, but the government does not provide the land. The land must be provided by the developers themselves.
In fact, the process of obtaining land for the government is easier than for the private sector. Infrastructure projects undertaken by the government are supported by Law No. 2/2012 on Land Acquisition for Development in the Public Interest. In this regulation, the government entrusts compensation money to the local district court if the landowner does not agree with the compensation value set by the government. Furthermore, the planned infrastructure project can begin immediately.
Another government, another developer and another private party. Law No. 2/2012 allows the government to avoid protracted deliberations to reach an agreement on land prices. For the private sector, there is no such guarantee. That is why the payment of additional obligations, upon the issuance of SP3L, in the form of the construction of low-cost flats will be more efficient if the land is provided by the government.
Another cause of receivables also comes from the government. The construction of low-cost flats uses the same licensing and planning procedures as the construction of commercial flats. The process can be accelerated if the land is provided by the government, but this is rarely the case. This is just about SP3L, about the developer's plan to buy land. Central and local government intervention is needed to meet the need for 800 housing units per year.
B. Onerous IPPR Obligations
Once land acquisition progress reaches at least 75 percent, SP3L holders can obtain a Land Use Designation Permit (SIPPT). The policy is stated in Article 19 of Governor Decree No. 11/1972 on the Improvement of Procedures for Application for Permits to Acquire and Designate/Use Land and Objects on it for Official/Private Interests in the DKI Jakarta Region. In 2016, the term SIPPT changed to Spatial Planning Principle Permit (IPPR) based on Governor Regulation Number 209 of 2016 concerning Permits and Recommendations for Space Utilization. Once the IPPR is issued, the holder cannot transfer the permit in any way or for any reason. In fact, this point can be one of the licensing innovations.
IPPR shows the validity of land tenure and its use. Prospective consumers can also ask the developer for the document as a way to prevent losses in the future. Through IPPR, the land that is the location of the development is proven to be legally controlled by the developer with a land certificate, free from disputes with other parties, and in accordance with the city plan.
B.1. IPPR Licensing Requirements are Similar to Location Permit Requirements
Developers who buy land that already has an IPPR should not need to repeat the land acquisition permit process from the beginning. The problem is that in Jakarta there is no waiver for the transfer of ownership of land that has been accompanied by an IPPR. The SP3L process must still be followed. In fact, the new landowning company should only need to continue the application for licensing at a later stage.
Such convenience certainly saves time, money, and speeds up the construction of housing. After all, land that has been equipped with an IPPR means that it has passed the government's checking process. Before issuing a Location Permit and followed by an IPPR, the developer as the permit applicant must submit a project proposal, which includes aspects of the city plan, land acquisition procedures, socio-economic and environmental aspects, and project management. Not only that, the proposal must also be accompanied by a 1:5000 scale situation map, a copy of the company's deed of establishment, and a statement letter of ability to prepare and build flats for low-income people. After these requirements are met, the local government holds a coordination meeting to discuss the Location Permit application.
The issuance of the IPPR has also been preceded by including documents and proof of ownership validity such as land certificates, current year's land and building tax, dispute-free statement letters, and bank recommendations. Repeating the licensing process by applying for a Location Permit for land that already has an IPPR is certainly contrary to the Ease of Doing Business indicators used by the World Bank for licenses related to building construction.
IPPR holders, based on Article 3 of Governor Regulation No. 228/2016 concerning Procedures for Acceptance of Obligations from IPPR Holders to the DKI Jakarta Government, are required to build and submit environmental infrastructure, social facilities, and public facilities. Another point in the same article reads the provision of obligations in accordance with those stipulated in the IPPR and or other documents and other obligations stipulated in the IPPR and or other documents. There is no detailed explanation of the phrases "obligations as stipulated in the IPPR" and "other obligations" in the article.
B.2. Obligation on IPPR is Not Transparent and Full of Discretion
The loose phrase "other obligations" in Article 3 of Governor Regulation No. 228/2016 gives the governor great authority to determine the types of obligations in question, including building low-cost flats. At the same time, this authority also creates the potential for business uncertainty as well as the potential for increased capital costs. The form of obligations can be very diverse and the value is also uncertain, which can even become a "wild ball" because there are no standardized rules regarding the form and timing of these obligations. The obligation has the potential to become an obstacle to business if it is requested when economic conditions are difficult. Developers on the one hand have to build their projects and are still overshadowed by additional obligations whose value has not been determined in the rules.
A clear and detailed form of obligation is a guarantee for entrepreneurs to take part in improving the economy. Meanwhile, unclear rules contradict the spirit of creating a positive investment climate. Even if the obligation is still implemented, the costs will be charged to potential consumers. Keep in mind, these potential cost overruns arise even during the preconstruction stage.
The formulation in the new IPPR appeared in Governor Decree No. 1934 of 2002. However, the regulation still does not regulate the value of "other obligations." The policy regulates the provisions of the value of the obligation to provide low-cost flats that are converted into funds by developers holding IPPRs. The formulation is:
The implementation of the fulfillment of the obligation is contained in an agreement signed by the governor and the IPPR holder. Article 2 of Governor Regulation No. 228/2016 states that the agreement is equipped with a City Plan Statement (KRK) and a letter of intent. For example, the effective area is the difference between the total land area minus the area of all public and social facilities that exist or will be built based on the KRK.
B.3. IPPR Leads to Reduced Buildable Floor Area
A quick look at the KRK, it arises between the issuance of the SP3L and the signing of the IPPR compliance agreement. The developer submits the KRK for the land on which the building is to be built to the Regional Space Utilization Coordinating Board represented by the One-Stop Investment and Integrated Services Agency (DPMPTSP). Later the KRK is used again as a technical requirement when applying for a Building Construction Permit.
The KRK contains a description of the zone and its designation, the existing condition of the land and surrounding area, and future government plans in the area, such as road construction. The KRK is the basis for preparing the technical building plan.
From the KRK, the developer will also get an explanation of the building functions that can be built on the land, the maximum permitted building height, and the maximum buildable land area. Other points also listed in the KRK are the boundary line and minimum building clearance allowed, as well as road plan instructions. Land that has been or will be acquired cannot be built on if the KRK states that part of it will be used as a road. This means that the area of commercial land that can be utilized is reduced from the initial planning. The compensation returns to the selling price of housing which has the potential to increase.
"The Jakarta Property Institute study throughout 2017
found that the processing time for the list of requirements
Environmental Permit takes 210 days"
C. Unnecessary Technical Standards
Regarding the preparation of technical building plans, developers must have an Environmental Permit that requires other things such as Dewatering Permits, Building Floor Peil Permits, Environmental Impact Analysis, Traffic Impact Analysis, and Aviation Operation Safety Area Permits. The dewatering permit is originally intended for drying the excavation area that will be used as an underground building or basement. The permit was granted by DPMPTSP on the recommendation of the Ministry of Energy and Mineral Resources.
Circular Letter No. 68/2016, when it was still called the One Stop Integrated Service Agency, said the dewatering permit was intended for basement excavation. Dewatering or drying work that serves to prevent groundwater from interfering with basement construction work. However, another point in the same circular states that dewatering permits are a condition for issuing Environmental Permits and Preliminary Foundation Permits for buildings with or without basements. The dewatering permit should not be a mandatory requirement if the building to be constructed does not use a basement.
A series of permits that are conditions for the issuance of the Environmental Permit are the authority of different agencies. The Building Floor Peil Permit is obtained by coordinating with the Water Resources Agency, the Traffic Impact Analysis requires a recommendation from the Transportation Agency. Meanwhile, the Environmental Impact Analysis is taken care of by the Environmental Agency. The management of the Environmental Permit requirements involves at least seven regional work units (SKPD) within the DKI Jakarta Government. The management is also carried out separately. The Jakarta Property Institute study throughout 2017 found the processing time for the list of Environmental Permit requirements takes 210 days. .
After the completion of the Environmental Permit, the issuance of the definitive KRK, and the signing of the agreement to fulfill the obligations of the IPPR, the Architectural Planning Drawing (GPA) will be approved by the Urban Architecture Building Expert Team. They are appointed by the governor to provide technical considerations and examine the building implementation plan. The assessment process by the Expert Team also often makes the development plan delayed. When working, the Expert Team together with related agencies will discuss the approval of the Architectural Planning Drawing. The problem is, the trial period is often delayed due to the incomplete number of members.
After the assessment is complete, the Expert Team will determine the results of the assessment of the developer's technical plan through a hearing. Technical plan documents (GPA assessment results) that do not pass must be corrected and resubmitted for assessment at the next hearing. In the assessment process, revisions to design plan documents can occur several times due to inconsistent rules, one of which is the regulation on fire protection systems.
C.1. Onerous Fire Protection System Regulations
The protection of buildings against the threat of fire is regulated by regulations issued by the Minister of Public Works and Housing to the decree of the Head of the Fire and Rescue Service. The fire protection system regulates at least four things. These are the size of the fire elevator, the pavement area, the size of the fire corridor, and the assembly area.
The Minister of Public Works Regulation No. 26/2008 on Technical Requirements for Fire Protection Systems in Buildings and Environments, requires the same size of fire elevators as fire elevators in hospitals for all buildings with a height of more than 20 meters. The size is 2,280 millimeters x 1,600 millimeters.
In fact, according to the international standard for fire elevators based on EN 81-72:2015, the size of fire elevators that are also used for evacuation is 2,100 millimeters x 1,100 millimeters. Elevator manufacturers tend to provide sizes with international standards. The difference in elevator sizes required by Indonesian regulations means that building owners, developers or contractors have to order special elevators at a higher cost and increase production costs. The result is, predictably, an increase in the capital budget for residential development.
Each building must also provide pavement for the parking area of fire trucks. Technical requirements for firefighting access in Governor Regulation No. 200/2015 require that the area of pavement as a parking location for fire trucks be at least 6x15 meters. For taller buildings, the requirements are more severe. The Decree of the Head of the Fire and Rescue Service No. 23/2015 requires a minimum area of 10x18 meters for buildings of more than 20 floors. This is not a small size for land in urban areas. To be more efficient in land use, the pavement area for parking fire trucks can be shared by several adjoining buildings.
Instead of providing a pavement area for fire truck parking, increased supervision of building fire prevention components, such as automatic fire extinguishers or sprinklers, smoke detectors, light fire extinguishers, is more effective. Moreover, increased supervision is made to prevent fires from occurring as early as possible, not the other way around.
