Update COVID-19 in Indonesia: 1,298,608 confirmed infections, 35,014 deaths (23 February 2021)
23 February 2021 (closed)
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Through the revision of an existing regulation the Indonesian government aims to support growth in the nation's property sector. The revision involves a tax incentive that allows Indonesia's first-time home buyers to obtain a subsidized lending rate (mortgage). Those first-time home buyers who have a maximum monthly income of IDR 7 million (approx. USD $504) are eligible to enjoy this incentive that falls under the Housing Loan Liquidity Facility (Fasilitas Likuiditas Pembiayaan Perumahan, abbreviated FLPP).
Previously, the subsided mortgage was only available to those that have a monthly income of IDR 4.5 million (approx. USD $324). By widening the target audience, more first-time home buyers will be able to enjoy cheaper lending rates. As such, the nation's property sector gets a boost.
Indonesia's property sector, which expanded rapidly in 2012-2013, has been plagued by slowing economic growth and the tighter monetary stance of Bank Indonesia (as the central bank became concerned about the bursting of a property bubble in the second half of 2013). Slowing GDP growth and tighter monetary policy managed to weaken people's purchasing power and made many property developers decide to postpone or cancel their property projects as sales slowed. However, since 2015, Indonesian authorities have started to support the property industry again (for example by raising the Loan-to-Value ratio for home mortgage loans per June 2015).
The latest tax incentive under the FLPP scheme especially aims to support the government's program to build low-cost housing. Another revision involves raising the ceiling for value-added tax (VAT) free home purchases. Previously, a 10 percent VAT had to be paid for homes worth up to IDR 144 million (approx. USD $10,400). The ceiling has now been raised to IDR 250 million (approx. USD $18,000).
Mekar Satria Utama, Director of Counseling, Service and Public Relations at the Finance Ministry's Tax Directorate General, said the revision implies that the Indonesian government will earn less revenue from VAT. However, by making it more affordable for people to buy their first home, the government expects to see greater economic development which is expected to more-than-compensate for reduced VAT revenue.