2019 : Financial Model for Low Cost Apartments

Dr.Ir. Ria Asih Aryani Soemitro M.Eng.
Farida Rachmawati S.T, M.T

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Low-cost housing is regarded as a viable and affordable accomodation for low-income community and to reduce slum areas. Low-cost apartment is considered as an effective solution to optimise the land scarcity issues compared to landed house. Therefore, to provide the low-cost housing and to reduce housing backlog, the government in some countries tend to build more low-cost apartments. Indonesian government has built some low-cost apartments for low-income communities. Furthermore, the government has planned to build 550,000 units low-cost rental and ownership during the year 2014-2019 by collaborative efforts of government and private sector. The very low rental price in the existing low-cost rental apartment in Indonesia becomes the obstacle for private sector to justify financial return for them to deliver low-cost apartment development project. The project is not profitable since the low-cost apartment is aimed to low-income community so that the selling and rental price are kept low. However, the rent determination for low cost rental apartment should cover at least the real operation and maintenance cost. In addition, the rent and selling price should consider the tenants’ ability and willingness to pay. This study will develop financial model to consider the economic viability to attract private sector investment. Semi-structured interview to government and non-government/private respondents will be conducted to validate the factors influencing rent and selling price, which will in turn effect the whole cash flow. While questionnaire survey will be administered to low-cost apartment’s tenants to answer the question regarding the preference and their ability to pay housing cost. The financial model will include cash flow and will be developed using system dynamics model. This study will recommend policy changes to provide more incentive for low-cost apartment investment and intensify the new supply.