Academic journal article Academy of Strategic Management Journal

The Investment Analysis of Public Apartment under Public Private Partnership Model to Attract Investors in Indonesia

Academic journal article Academy of Strategic Management Journal

The Investment Analysis of Public Apartment under Public Private Partnership Model to Attract Investors in Indonesia

Article excerpt

INTRODUCTION

Bandung is one of the largest cities in Indonesia which has a population dense with a high growth rate of 1.88%, with an average density 14,651 inhabitants/km2. Population will reach 4 million inhabitants in 2031. One of the implications is the increasing need for facilities and infrastructure services in residential city, including adequate housing for low-income groups (LIG). With increasingly limited urban land, land prices in the city is increasing along with the limitations from Government of Bandung budget in providing residential facilities and infrastructure needed to support the daily activities for the population, then the logical consequence that commonly occur in urban settlements is the emergence of slums area. LIG is not able to reach the mortgage with the selling prices average above IDR 500 million. . The average price of land in Bandung is about IDR 2.7 Million / m2 while the house is IDR 6 million / m2, it rose again up to 36% into IDR 3.69 million / m2 on average in less than a year (Urbanindo, 2014). This increasing price applies to all kinds of other properties, such as apartments and shop houses which rise on average by 20-30% (Urbanindo, 2014). The limited capacity of the developers is not yet supported by the nature of incentives and subsidies plus the low affordability of LIG. This causes degradation of quality of the housing and creates new slums. It can be seen from the increase in slums from year to year. In 2010, the number of slums in Bandung is 6.11 % and in 2014 increased to 8.5% (Distarcip Bandung City, 2015).

One of the policies from the Government of Bandung in housing and settlements is to develop a vertical housing, in the form of Owned Flats and Housing Rent for LIG. Bandung City Government has given priority to approximately 15 locations for the construction of vertical housing or Housing using government land as a solution for handling slums and fulfillment occupancy becomes feasible and affordable for LIG, which was popularized by the name of People Apartment/Public Apartment or "Apartemen Rakyat", this concept mixed with commercial apartments, the area of trade and another facilities the so called mixed used building, the commercial area is expected to provide cross-subsidies for public apartments for LIG area. These locations are using government land and some of the city part is the location of the privately owned land in the dense slums which will be acquired by the government. The private sector will have management rights for 60 years with the scheme of Build Operate Transfer (BOT). The problem that arises is the lack of funds from the budget of the city of Bandung to build subsidized public apartments which number is expected to reach 5 trillion, the same amount with total Bandung city budget. Therefore, Public Private Partnership will be the solution to develop people settlement in Bandung

LITERATURE REVIEW

Gilmour et al (2010) explained about public private partnership (PPP) in public housing as a social infrastructure concept which allows the business scheme either "Build Own Operate Transfer" known as BOOT or "Design Build Finance Operate" or DBFO. The case for land owned and acquired by the government like in Bandung, the scheme is BOT so the private sector cannot own the project perpetually. PPP provides the opportunity for the private sector to work on projects that should be the responsibility of government, but since the government has a limited budget, then the private sector can participate to establish, manage and after the investment costs covered and make a profit, this subsidized apartment will be transferred back to the government. PPP also allows the concept of risk sharing between the government and private companies with a pattern of risk sharing as follows:

Furthermore Mc Kinsey (2014) has a concept called "affordable house" in housing finance. According to the report, there are four factors to reduce costs by 20% -50% to be an affordable for the lower class. …

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