Main Reasons For The Importance Of Housing Financing

Main Reasons For The Importance Of Housing Financing – As the population increases, the need for housing will also increase. One of the efforts to fulfill access to fulfillment in the housing sector for the community is through housing finance. The existence of housing finance is needed to provide affordable and easily accessible financing services to all levels of society.

The definition of housing finance can be seen from each syllable, namely financing and housing. Financing is the amount of capital or amount of money given to an organization in the hope of being paid back at a certain percentage of interest. It is usually provided by financial institutions such as banks or investors such as venture capitalists, business people, shareholders, etc.

Meanwhile, according to Law Number 1 of 2011 concerning Housing and Settlement Areas, housing is a collection of houses as part of settlements, both urban and rural, which are equipped with infrastructure, facilities, and public utilities as a result of efforts to fulfill several livable houses..

Therefore, housing finance can be defined as the efforts of a party or institution in order to provide a certain amount of capital to meet various housing-related expenditures. The following will explain the Importance Of Housing Financing.

Main Reasons For The Importance Of Housing Financing

One of the main reasons housing finance is important is that the asset being financed, namely the house, makes up the bulk of wealth and constitutes a fixed capital. Housing is also a representation of the largest proportion of consumption of the majority of households, which is around 25-35%. The ability to streamline financing in the housing sector is very important in the economic system because it has a significant impact on economic growth.

Housing finance can help a household in distributing its expenses according to its income level. In addition, wider access to housing finance can also have a positive impact on urban development. Renaud’s (1990) explains that cities are built on how to finance them.

However, the practice of housing finance in Indonesia still faces various obstacles. According to the Directorate General of Public Works and Housing Infrastructure Financing (2019), there are at least around 11 million households that do not yet own a house or live in uninhabitable houses. This high number indicates that formal housing finance is still unreachable, especially for low-income people (MBR).

One of the problems is the availability of housing finance schemes, which generally only serve groups of people who work in the formal sector. In fact, most Indonesians work in the informal sector. Apart from not meeting the requirements, their monthly income is also relatively low when compared to the obligation to pay installments on credit/housing financing. Therefore, there are factors that need to be considered so that they can support the development of housing finance, namely:

Macroeconomic Factors

The combination of the impact of low market interest rates, good bank liquidity, and improved regulatory conditions for lenders can be an effective starting point for the development of the housing finance market. Stability and conducive macroeconomic situation are prerequisites for sustainable housing finance development, although improvements in other related conditions are still needed.

Financing Liberalization

The financing architecture of the post-World War II period was financing controls, interest rate caps, and limited competition. However, this paradigm has changed and has been replaced by a more competitive paradigm and an integrated world financing system.

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