Making 'Places to Live' a Business in Indonesia – 13 Million Housing Shortage

Indonesia Research Institute (located in Tokyo) is supporting Japanese companies and investors to enter real estate development projects in Indonesia, utilizing the government-subsidized housing loan scheme "FLPP," amidst a severe and ongoing housing shortage. With a population of approximately 287.9 million, Indonesia faces a deficit of about 13 million housing units, leading to the promotion of the "3 Million Housing Construction Program" nationwide. This market, which consistently sells approximately 300,000 units annually, is an attractive investment destination with an estimated annual return of around 13%, and opportunities for Japanese companies are expanding.

What is happening in Indonesia - A Housing Crisis of 13 Million Units

Indonesia, currently the world's 4th largest populated country, is home to approximately 287.9 million people, with about 4 million newborns annually. Housing supply cannot keep up with the rapidly increasing population, resulting in a shortage of approximately 13 million units for new construction demand alone, and a staggering 29.1 million households lacking adequate housing when renovation demand is included.

Only 43% of all households live in appropriate housing, with about 26.9 million households living in substandard dwellings and 9.9 million households being homeless. According to World Bank data (2023), approximately 22% of the urban population lives in slum areas, making the housing problem a top social issue that the Indonesian government must address as a priority.

In response to this situation, under the leadership of President Prabowo, the "3 Million Housing Construction Program" is being promoted as a national strategy, with a public-private partnership support system in place to enable low-income segments (MBR) to acquire affordable housing.

What is the government-subsidized housing loan "FLPP" scheme?

For general housing loans (KPR) in Indonesia, common conditions include a 15-20% down payment and an interest rate of 8.5-11% (variable). Only about 40% of applicants actually pass the loan screening. Owning a home has remained an unattainable dream for low-income segments.

FLPP (Fasilitas Likuiditas Pembiayaan Perumahan) is a government-subsidized housing loan scheme designed to solve this problem. With a down payment of just 1%, a fixed interest rate of 5%, and monthly repayments of 1 million to 1.8 million IDR, the hurdle for purchase has been significantly lowered compared to general loans. Housing prices are set between 160 million and 180 million IDR (approximately 1.66 million to 1.86 million JPY), making it affordable even for low-income segments in Indonesia.

FLPP, which started in 2010, saw the introduction of a fixed interest rate of 5% in 2015, and further improvements in the scheme, such as simplified application processes through digitalization in 2023. The funding structure consists of 75% government and 25% partner banks, with the state actively injecting financial resources, enhancing the stability and reliability of the scheme.

A Market Selling 300,000 Units Annually - What is the Project's Profitability?

In Indonesia's subsidized housing market, approximately 300,000 units have been consistently sold annually since the Jokowi administration. The government's target for 2025 is 350,000 units/year, and as of February 2026, 19,741 loan executions have already been confirmed. As resolving the housing shortage is a national issue, this demand is expected to continue long-term.

So, what are the actual investment returns? Taking a typical project size of 1 hectare (100 units) as an example, the development scheme proceeds with the following estimates and steps:

Estimates If 40% of the developable area is public space and 60% is available for housing development, then 1 hectare yields 6000 sqm for housing. With approximately 60 sqm per unit, 100 units can be constructed. Unlike general housing, low-income housing is not sold before construction but built as inventory for immediate sale.

Steps - Step 1 | Land acquisition, site preparation, and permits (approx. 8 months to 1 year) This involves purchasing land, preparing the site, coordinating with residents, and obtaining various permits. In Indonesia, the permit process takes a certain amount of time, so it is crucial to incorporate this period into the plan.

- Step 2 | Initial construction and sale of 50 units (approx. 3-6 months) As subsidized housing is sold as built inventory, units are constructed first and then sold. Due to strong demand from low-income segments, cases of immediate sell-out are common. Cash out (initial investment) is around 100 million JPY, and cash in (sales) is 50 units x 1.66 million JPY = approximately 83 million JPY.

- Step 3 | Construction and sale of remaining 50 units (approx. 3-6 months) The sales proceeds from Step 2 are utilized to construct and sell the remaining 50 units. Additional cost is approximately 40 million JPY, and sales are again approximately 83 million JPY.

Key Points of Project Profitability Total profit: Approximately 26 million JPY Annualized return: 13%