The Business Implications Of A New Anies-Sandi Administration

Image credit: republika.co.id

With the departure of outgoing Jakarta governor Djarot Saiful Hidayat from political office last weekend (having served in the position for five months in place of Basuki Tjahaja Purnama, more commonly known as Ahok), City Hall officially welcomed Anies Baswedan and Sandiaga Uno as the city’s new governor and vice governor respectively on 16 October. This came six months after a controversial and hotly contested election, which saw a range of divisive social issues come to the fore.

The inauguration ceremony was led by President Joko Widodo at the Presidential Palace in Jakarta, and was guarded by 7,000 security personnel. Some 1,000 supporters showed up at the celebratory festivities that accompanied the event, which was jointly broadcasted across villages in Jakarta using virtual reality technology.

As the duo begin their term in office, we take a look at two key promises made on the campaign trail, the business implications it might have should these promises come to fruition.

  1. Putting a stop on land reclamation project

From the beginning of the campaign, Anies had promised to stop Jakarta’s large-scale reclamation project, which was initiated by the Jakarta city administration in 2016. The project involved the construction of 17 manmade islands on the city’s northern coast, developed by private companies. The reclamation was aimed at helping Jakarta solve its land problems, amid threats of land subsidence and rising sea levels. The project garnered widespread criticism, which cited worsening environmental conditions and the land only being used by higher-income citizens as part of the problem.

Before the new Jakarta administration took office, Indonesia’s coordinating minister for maritime affairs, Luhut Panjaitan, issued orders to continue with the project, which had been stalled for over a year. This past week, Luhut changed his tune by affirming that he would respect the decision made by Anies as governor, so long as his decision is made in line with regulations.

Should the project be halted, the hardest hit businesses will be the private property developers working on the reclamation. These companies include PT Agung Podomoro Land, Jakarta Propertindo, Agung Sedayu Group and Intiland Development. Agung Podomoro Land had already faced a separate hurdle in relation to the project, when the country’s Corruption Eradication Commission (KPK) arrested president director Ariesman Widjaja in April 2016 on the grounds of graft allegations.

According to mainstream online investment site Indonesia Investments, it is unlikely that the remaining 14 islands that have not been built, will be built at all. Learning from this case, investors have to be wary about local regulations before making million-dollar investments. The reclamation met with numerous permit violations, with the existing legal framework in the country being ill-equipped to deal with the needs of the project. Ultimately, it was the consumers who lost out as developers sold units on the islands even before obtaining permits necessary for the project.

2. Enacting zero downpayment for homes

Another campaign promise that Anies made was to implement a zero percent down-payment housing scheme. This was a bid to reform housing financing in Jakarta, allowing residents to own houses without putting a down-payment rate of up to 15% of the property’s price. The Anies-Sandi pairing debuted the policy early on in their campaign, in hopes of mobilising lower-income voters, and as well as benefit fresh graduates.

However, in February 2017, the country’s central bank Bank Indonesia issued a warning to lenders not to offer mortgages without a down-payment as it violated loan-to-value ratio regulations, which requires a down-payment on every loan. In response, Anies maintained that the regulation had loopholes that could work in favour of low-income earners looking to own smaller houses. According to a report in Jakarta Globe, Anies’s plan was to have city-owned lender Bank DKI to adjust the down-payment on a home loan according to each applicant’s ability to repay the loan under a more customised loan scheme.

In April this year, John Riady of the Lippo group business conglomerate announced his support of the proposed policy. As Tempo reported, John expressed his belief that the program would help increase home ownerships in the city, and was keen on cooperating with the new administration to put the necessary measures in place. Later in June 2017, Anies promised the roll-out of the policy in 2018. According to Anies, the policy can be carried out by the private sector and supported by the state.

Related to the housing policy is a promise that there will be no more “tearful evictions” of residents from slums, maintaining that they have a right to decent housing in the capital.

Possible practical implications to follow from the policy are in terms of resource allocation. How will the new administration prevent exploitation of the scheme by those with poor credit histories, or by the middle to high income earners who procure property for investment purposes, and in turn rent it out to those less well-off? Property developers may also stand to gain from the policy — given that more individuals are likely to afford homes, the demand for housing in the city would naturally increase, providing a boon to landowners and developers.

Written by Datarama Analyst Syafiqah.

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