The investment analysis of public apartment under public private partnership model to attract investors in Indonesia

Abstract

Indonesia is currently experiencing the rapid economic growth. However the growth caused the low income groups (LIG) cannot afford to buy a house due to expensive price of land. Government has a responsibility to provide affordable housing for LIG despite lack of government's budget. Public private partnership (PPP) can be conducted in which private sector develop mixed used buildings and play cross subsidy between commercial and public apartments under government's guarantees. To attract private investors, government should calculate the investment analysis resulted in feasible output. This paper uses public apartment project in Bandung as a case study by applying the investment analysis tools namely capital budgeting as well as risk management using risk matrix and scenario analysis especially if portion for public apartment increases over the commercials. Benchmark from the other countries will also be taken as a reference. As the proportion for LIG increases, feasibility output like NPV and IRR declines, so subsidies and incentives from government could be needed. This paper will recommend subsidy and incentive types for covering the portion of LIG in Public Apartment in order to make the project feasible and attractive for investors. Once this investment model succeeds, it can be used as a reference for further public apartment development under PPP in Indonesia.