Band_Sam by linxiaoqin


									                          Guide to Good Practice
                          Core Area Development
                              DFID Research Project R 6860

             Inner City Redevelopment Strategy:
The Role of Agents in the Development Process,
                     A Learning from Two Cases
         in Indonesia (Bandung and Samarinda)
                                     DRAFT WORKING REPORT

                  Haryo Winarso – Institute Technology of Bandung

                                               Max Lock Centre
                                        University of Westminster
                                            35, Marylebone Road
                                               London. NW1 5LS
                                                     March 1999
                          A LEARNING FROM TWO CASES
                                 IN INDONESIA 1

                                               Haryo Winarso 2

Housing for low-income people has always been on the agenda of every government in the
world, yet the problems still remain, and this is particularly visible in third world countries 3 .
Those problems are most crucial in urban areas where people of different levels of income are
mixed together. Housing for the low and the very low-income groups, which amount up to 70
percent of the urban population, are insufficiently, if not at all, serviced by the infrastructure 4 .
These types of houses usually have no security of tenure. Generally they occupy marginal
land, on riverbanks, steep slopes, or along railways located in inner city. These kinds of
settlements are usually referred as slums or squatters. The people living there accept the
conditions because they need to stay in the inner city areas to have access to their income
sources that are located in this area. 5

Effort to develop inner-city areas becomes a conflicting issue. The land allocated for low-
income people, as part of the government intervention on land market has never been
adequate (Baros, 1983). The underlying reason for this is the fact that the government has to
acquire the land against the market price, usually in a very cumbersome procedure. However,
increasing private investment has transformed the inner city into a commercial area, enhance

    Prepared for ‘A Guide to Good Practice in Core Area Development’ a DFID funded research conducted by
    Cities Research Centre and Max Lock Centre, University of Westminster, London.
    Haryo Winarso is from the Department of Regional and City Planning, Institute of Technology, Bandung,
    Discussion on the third world government’s policies in providing house for low-income people can be seen in,
    for example: Struyk, Hoffman and Katsura (1990), Marcussen, L (1990), for housing policies in Indonesia;
    Agus, MR., (1989) for housing policy in Malaysia.
    Alan Gilbert (1993) has extensively discussed the housing infrastructure and servicing in Third world cities
    and suggest that privatisation could be the right answer for providing housing, infrastructure and services.
    This has been extensively discussed by scholars notably Turner, J,C., (1968), see also Sastrosasmito, S and
    Amin ATMN (1990)

the environment quality. They argued that they are successful in enhancing the social-
economic and physical characters of the area through a process called as "Gentrification".
Gentrification does restructure the inner city in terms of occupational and macro economic
activity, as well as improving housing quality and social service level (Bourne, 1992). This,
however, is not the acceptable way as the middle low and the low- income people will suffer
since they have to move away from their income sources in the urban area. 6 Other critic on
the previous practise of slum upgrading programmes was the lack of community participation.
The BLISS (Bagong Limpunan Improvement of Sites and Services), for example, was one of
slum upgrading programmes criticised for its fail in mobilising community participation and
therefore fail in addressing the problem of housing the poor in Metro Manila. (Abueg, 1986).

The World Bank’s idea published by the UNCHS (Habitat) in the "Global Strategy for Shelter
to The Year 2000" calls for a new arrangement in the responsibilities of the public and private
sectors. The idea encourages the production of housing units by the formal and informal
private sectors, while the government is asked to make the process much easier. This strategy
is called as "Enabling Strategies" (UNCHS, 1990). The strategy, however, is not a new one.
This just “an old wine in a new bottle", a reformulation from what has been suggested since
the early 1960s, particularly by Charles Abrams and Otto Koenigsberger (Wakely, 1986).
What is new is, perhaps, the encouragement to work with private sector, as influenced by
Neo-Liberal Economic model which call for state withdrawal and public-private partnership
becomes an important agenda for the development. This means a shift from a concept focused
on ‘funded basic needs infrastructure development projects’ towards a concept of ‘self
financing development projects’ through more efficient management under the wider scope of
an urban management agenda. Likewise, the agenda of "Affordabilty-Replicability Paradigm”
as executed in the form of Site and Services projects funded by the Bank has moved onto
Slum Upgrading Projects under an urban management paradigm.

In developing countries, attention has been drawn to land sharing/land readjustment strategies
as alternative solution for slum upgrading under the urban management paradigm. Various
studies have been conducted in relation to the relatively new approach for inner-city

    Kool, M., Verboom, D., Van der Linden, J (1989) suggest that squatters settlements improvement has almost
    always resulted in gentrification and the lower income group will be the first victim.

improvement in developing countries. 7 To a greater extent, the approach has been
implemented in Japan, Taiwan, Korea and Bangkok 8 . Land sharing may be the appropriate
way to redevelop inner-city slums without eviction. This is because the technique accepts the
right of the slum dwellers to live in the city and the right to share in the increased land value.
This technique also allows for densification, reconstruction, participation and cross-subsidy as
the basic principles for redeveloping the inner city slums (Angel, S., Amtaputh, P., 1989).

The implementation of such technique is not without difficulties. The fundamental problem is
that the technique is based on profit to be gained, hence on the maximally profitable use of
the land. Its potential for provision of land for low-income housing is therefore limited
(Baken and van der Linden, 1992). In Korea, for example, despite the fact that land
readjustment technique has been implemented for 30 years problem relating to financing and
planning the projects are still in evidence (Taeil, 1987). Nagamine, (1986) pointed out that
despite the many advantages of the technique as experienced in Japan, there are some
drawbacks, should be exported to developing countries, particularly with regard to the time
and finance needed for the public participation 9 . This particularly because the technique
demands effective government support, and sound legal and institutional set-up. Another
drawback is that the equity is poor when compensation to owners is in terms of land area
(Baken and van der Linden, 1992; Doebelle, 1983; Archer, 1987).

Theoretically, this concept is applicable. However, in some developing countries, the
implementation of such technique is still to be observed. This is particularly because the shift
of the agenda has changed the role of public sector professionals and technicians, from the
previously paternalistic way of the state housing production and management towards
democratic approach of public participation.

    Islam, PP., and Yap, KS, (1989); Also Yap, KS, Eds. (1992), for example, have nicely discuss and identifies
    the potential of land sharing technique for large scale application based on their study in Bangkok slum
    upgrading programmes.
    Nagamine, H (1986), Masser, L (1987), discuss Japanese experience in implementing land readjusment
    technique; Taeil L (1987), discuses Korean experience in Land readjusment, particularly in Gaepo project in

Within the above framework, this paper present detailed analysis of inner-city development in
Industri Dalam project in Bandung and a highlight of similar project in Citra Niaga in
Samarinda as an example of the Enabling Strategy as experimented in Indonesia. This paper
argues that the implementation of Enabling Strategy demands structural and procedural
changes in most of the agents involve in the development process. The change is particularly
needed in the institution responsible for decision making and management of the housing

Urban Low Income Housing Policy in Indonesia
In Indonesia, where the total population is reaching 200 million, the population living in
urban areas is 64,4 million or 34 percent of the total population. Almost 70 percent of the
urban population are those from the middle low and low-income groups. Therefore, housing
for the urban poor is certainly one of the problems to be addressed.                 The urban population
growth rate of 5.5 percent per annum during 1980 to 1990 is considered high. It accounts for
about two-thirds of the total population growth from 1980 to 2000. The serious implication of
this trend is the need for living spaces, shelters, and other urban services.

These, as the result of market forces, have became scarce and more expensive particularly
those in inner city areas, resulting in the severe condition of urban poor area in the inner city.
The work of Turner in Lima, Peru, and his famous book "Housing By People" (1976) has
made Popular Housing Development become one of the accepted concepts for housing
provision. This is what has really been happening in developing countries. In the case of
Indonesia the popular 10 housing provision has proved to be able to provide over 80 percent of
all housing needs. (Struyk, Hoffman and Katsura, 1990), The formal system, on the other
hand, only provides the rest. This system which is often heavily subsidised, provides
moderate to high income housing

   Masser (1987), for example, also suggest that although the technique has been widely used for urban
   development in Japan, there are still problems in the implementing the technique.
   In Indonesia, production of urban housing is largely done by popular and professional house builders. Popular
housing are those developed by individuals without reliance upon either government or formal private sector
institutions,. While the professional are those created by private or government owned companies (Struyk,
Hoffman and Katsura, 1990). Formal housing development has to comply with certain building standards set up
by the Government.

In the urban areas, the executed housing policies consist of three different parts. One policy
is to improve and to maintain existing settlements through Kampung Improvement
Programme, mainly by improving the infrastructures. Secondly, to construct new houses,
with the government’s funds mostly for low income people, and private sectors funds mostly
for middle and high-income people. For the low-income people, the government has set up a
National Housing Development Corporation (Perusahaan Umum Perumahan Nasional
PERUMNAS) under Government Regulation No. 29 of 1974, to provide affordable housing.
In addition, a mortgage system was established in 1975.

This system recognises BTN (The State Mortgage Bank) to be responsible for financing the
house mortgage scheme for lower and middle-income people including financing the houses
constructed by PERUMNAS. The third policy is called the "urban renewal" system. In this
policy the government demolishes deteriorated Kampung areas and constructs new dwelling
units with the necessary infrastructures and facilities. This program has been implemented by
PERUMNAS in some of their projects, with mortgage and construction loan from BTN. This
policy was enforced by a Presidential Instruction Number 5 of 1990 regarding The
Redevelopment of Squatter Settlements over Government Land. This Instruction stipulates
that squatter settlements over a government land shall be redeveloped with no eviction. It is
important to note that this instruction also recommends the private sectors' participation as
one possible financial source.

"Industri Dalam” Redevelopment project
Industri Dalam slum is located on the northern side of the railways in the Centre of Bandung
Municipality. From 1920s to 1960s some parts of the area were a vacant land while the other
parts were used for industrial activities such as textile, gas, furniture and chemical industries.
The land was owned by the Dutch with the "Right of Use" title (which is only valid for 20
years). After the take over by the Republic of Indonesia in the 1960s, the land was entitled as
"Government Land." The people began to occupy the land, as the government seemed to
neglect the land.

In 1985, the occupiers (squatters) had requested to buy the land to be converted to a Simple
Fee Right. The request was refused because the government wanted to redevelop the area
with no eviction to the occupiers. The initial study for the redevelopment project was
conducted by the Centre for Human Settlements Research and Development in co-operation
with Japan International Co-operation Agency (JICA). The study project was so called
KAT44. In 1987, further KAT44 Study Project was conducted in which one of its objectives
was to prepare a site plan for the Industri Dalam Redevelopment. The study also assessed the
prospect of public-private partnership for financing the project by allocating some parts of the
study area for commercial use. This study concluded that the project was feasible due to the
following reasons:
-      Almost half of the area is owned by the government.
-      There is a Presidential Decree (Decree no 32/1979) that can be used as the legal basis
       for the project.
-      The strategic location of the area could be used to invite private investment for
       commercial use.

This project basically adopted the land sharing and land readjustment concepts. The main idea
was to resettle the squatters in Industri Dalam area into walk-up apartments that will be built
in the same area after the demolition of the squatter’s houses. The remaining land in Industri
Dalam area owned by the government will be sold to private investors to finance the
construction of the walk-up apartments and the overall redevelopment. The private
landowners in Industri Dalam area who were affected by the project were planned to be
settled in maisonettes in the same area.

The Industri Dalam Redevelopment Project was started in 1990. The project involved the
local government, the Centre for Human Settlements Research and Development, Department
of Public Works, and the Office of State Minister for Public Housing (hitherto the Centre).
However, it seems that it was only the Centre which were deeply involved in the project,
starting from the planning stage until the implementation stages. During the implementation
stage, an agency called the Executing Board for the Slum Improvement Programme--EBSI--
(Badan Pelaksana Penataan dan Pembangunan Permukiman Kumuh) was created. This
executing board is responsible for the implementation of the project as stipulated by the
Presidential Instruction. However, since this board was created after the project was started,
its role has never been clear, particularly to the community.

The total project area is around 24,800 square meters (2.48 ha) out of which 11,000 square
meters (1.1 ha) is government owned land. The rest (1.38 ha) is land with Simple Fee Right
title. The initial plan designated the land use as the Table. I.

Table I: Initial Land Use Allocation (1987)
Land Use                            Area square meters                  %
Infrastructure                                  4,380                   17.29
Circulation                                      5,000                  20.10
Sub total                                       9,380                   37.39
Maisonette                                      5,700                   22.91
Walk-up Apartment                               2,268                   9.12
Sub Total                                       7,968                   32.03
Commercial                                      1,400                   5.63
Mosque                                          400                     1.61
Elementary School                               1,200                   4.82
Policlinic                                      300                     1.21
Funeral House *                                 1,000                   4.02
Sub Total                                       4,300                   17.29
Furniture Industry*                              3,250                  13.07
Total                                           24,875                              100.00
Note * Existing use

However during the Implementation stages, there are changes in the allocation of land use,
and when the project started in 1990 the land use allocations were as shown in Table II.

Table II: Land Use Allocation in 1990

Land use                            Area (sq.meters)         Percentage
Maisonette                          3,120                    36.20
Walk-up apartment A                 384                       4.45
Walk-up apartment B                 576                       6.69
Sub total                           4,080                   47.34
Elementary school                   600                    6.97
Kindergarten                        400                    4.64
Mosque                              200                    2.32
Sub total                           1,200                     13.93
Open space                          1,200                   13.93
river                               638                     7.40
Commercial                          5500                    5.80
Circulation                         1,000                   11.60
Sub total                           3,338                     38.73
Total                               8,618                   100.00

Source: Centre for Human Settlements Research and Development,
        Department of Public Works (1991)
Note: This allocation of land was planned in the 11,040-sq. meter of
        government land, and thus there was still 2,422-sq. meter land
        available as a reserved land

Most of the populations are migrants who have already been living in the area for 5 to 25
years. The physical condition was severe. There was no individual (household) piped water
and the sanitation was bad. The houses, however, were made from brick, built and
constructed as permanent buildings. The size of the houses varied from 10 square meters to
50 square meters, most of those houses were privately owned. They either built the house
themselves or bought it from the former resident. 11 A survey conducted in 1990 by the Centre
reports that the total households in the area were 163 while the total population was 815. This
means that, in average, each household consists of 5 persons. The average density is not too
high: 340/hectares. However, since part of the land is for light industry, the net density of
522/hectares in maximum two-story houses is considered high 12 .
Most of the populations are engaged in informal sector economy, for example as workers,
vendors, becak (rickshaw) drivers. The average monthly income ranges from 100.000 to

      As squatters they do not own the land, but since they were already been living there for considerably long
     time, their ownership to the building is recognised by the government.
     A very high density Kampung the density would fall between 600 to 800 persons per ha. A low-density
     housing project would allow a gross density of 100 – 150 persons per ha.

150.000 Rupiah (approx.: US$ 10 to US$ 15) 13 which is very low compared to the average or
mean of Household Income in Indonesian cities (Rupiah 209.000 in 1989; approx.: US$ 20).
In Bandung Municipality, according to the study conducted by the Ministry of Public
Housing, 40 percent of the population earn in the range of 101.000 Rupiah to 200.000 Rupiah
(approx. US$ 10.1 to US$ 20) per month. (The Urban Institute and Hasfram Dian Konsultant,

A sample survey 14 conducted in 1993, as seen in the Table III bellow, illustrates the
household income before and after living in walk-up apartment. The Table shows no
significant changes in the households’ income despite the pessimistic fear in the beginning
that the income would decrease because a walk-up apartment would limit their income-
generating activities 15 .

Table III:      Households Income Before and After Living in Walk up Apartment (1993)
Income/month                    before             after            Change

 (Rupiah)                       No.     %       No.     %       No      %
          Less than 25.000      2        6.5    3        9.7    1        3.3
           25,000 - 50,000      1        3.3    1        3.3    0        0.0
          51,000 -100,000       6       19.3    4       10.0    2        6.4
          101,000 -150.000      6       19.3    5       16.1    1        3.3
          151,000 -200.000      8       25.8    10      32.2    2        6.4
          More than 201.000     8       25.8    8       25.8    0        0.0
Total                           31      100.00 31       100.00 6        19.4
Source: Field survey

However, a sample survey 16 conducted on June 1994 shows that the household income has
increased considerably. The average range of income increased from between 101,000 to
151.000 Rupiah (approx. US$ 10.1 to US$ 15.1), to 200.000 Rupiah (US$ 20) in 1994 (well
above inflation rate of 8 per annum at the time). However, if we consider their spending, it

      The Rupiah value is falling down after the monetary crisis in Indonesia in 1997. The value downs from
     approximately 2000 Rupiah per 1 US$ in 1995 to approximately 10.000 Rupiah per 1 US$ in May 1998.
     The US$ equivalents in this paper are using the May 1998 figure.
     The survey was part of an action research programme conducted by the Department of City and Regional
     Planning, Institute Technology Bandung from 1993 to 1996.
      In a landed housing, households can run informal business activities such as shops or workshops in their
     house, while in walk up-apartment, as their spaces are very limited, such activities are not easily run
     See note 14

becomes clear that although their absolute incomes were increased, they still could not afford
to save enough money for living. The mode of range of their spending per month according to
a survey conducted in May 1995 was between 200.000 - 300.000 Rupiah. (Approx. 20 to 30

The construction of the first Walk-up apartment (Block A) was finished in June 1991 and the
first family moved to the apartment on August 1991 17 . In 1995, only the first walk-up apart-
ments (Block A) that has already been fully occupied. Walk-up apartment A was designed to
house 41 households out of 815 households in the area. In the second walk-up apartment
(Block B) only 8 units at the ground floor were occupied despite the fact that there were still a
lot of household have not been resettled.

A study 18 conducted in 1993 reveals the fact that people still hesitate to live in a walk-up
apartment (see Table IV). Twenty persons out of 31 respondents who stay in apartment did
not answer the question regarding their perception about living in a walk-up apartment. It
seems that it was still difficult for them to express the feeling regarding their houses.

Table IV:         Perception on Walk-up Apartment (1993)
Perception to the          Apartment        Non Apartment
Walk-up apartment          resident        residents

                        No       %      No      %
Good                    1        3.2     8      22.2
Not-bad                 7       22.6    12      33.3
Poor               3      9.6   13      36.2
No answer               20      64.6     3       8.3
Total                   31      100.00 36       100.00
Source: Field survey

The non-apartment resident, who will move to the second walk-up apartment, answered the
question based only on what they saw. It is true that the walk-up apartments have better

     See Appendix for the location and the plan of the Project.
      see footnote 14. The study was aimed at assessing the people’s perception concerning living in a walk-up
     apartment. The sample was chosen randomly from households in the Industri Dalam area.

structure and provision of infrastructure than their previous houses. However, a survey
conducted in May 1995 reveals that their feeling about their houses has changed.

Table V:          Perception on Walk-up Apartment (1995)
Perception to the                  Apartment
Walk-up apartment                  resident

                                No.      %
Good                            36      73.5
Not-bad                         -       -
No different                    13       26.5
Total                           49      100.00
Source: Field Survey 1995

One advantage of the area was the presence of an open land due to the demolition of a movie
theatre owned by the local government. Accordingly, in the initial process of the
reconstruction, only nine houses were to be torn down. The reconstruction of the area was
planned to be done in 12 steps as follows:

1.      To rent houses for 9 households
2.      To demolish 9 houses
3.      To build 52 units walk-up apartment block A in the open land
4.      To move 30 households to the walk-up apartment block A
5.      To rent houses for 11 households
6.      To demolish houses for walk-up apartment block B
7.      To build 64 units walk-up apartment block B in the former area for 30 houses
8.      To move 50 households to the walk-up apartment block B
9.      To demolish houses for 152 units’ maisonette
10.     To build maisonettes
11.     To move the rest of the residents to the maisonettes
12.     To build commercial buildings

These twelve steps were planned to be done within 2 years from 1990. However, due to the
financial problems, the implementation of the project had to be rescheduled so that the overall
reconstruction would be finished in 1995. However, from the latest available data, up to

November 1996 step 10 to 12 had not been realised due to a problem in finding financial
support from private sector. (Department of Regional and City Planning, ITB: 1996)

In the implementation, it seems that only step 1 to step 4 worked fairly well. The problems
rose in the unit allocation due to the unclear criteria and information. The government
proposed the following criteria to define the compensation:

a.     Occupancy status,
b.     Size of the house and
c.     Condition of the houses.

A house with: clear occupancy status, i.e.: with prove of ownership; large size and in good
condition, i.e.: made of brick, would be given the highest compensation.

Originally, the money for compensation would not be cashed to the residents. The
compensation is to be invested in the construction of the walk-up apartments and maisonettes
and considered as down payment if people want to buy the unit in the walk-up apartments or
maisonettes. However, it seemed that the ideas were not clearly informed, therefore, the
community petitioned and insisted to cash the compensation. After several negotiations, the
government gave up to the appeal of the people and distributed the compensation.

The allocated unit sizes posed other problems for the community. Due to the budget reasons,
the units in the walk-up apartments are small (24 square meters and 12 square meters). This
creates problems to the community due to the fact that they would not be able to develop their
property vertically. In the allocation of the unit’s size, the government only considered the
ground floor size of their previous buildings as the base for the unit’s size allocation. Hence, a
household with a big family member who previously occupied in "two story" of 12 square
meter ground floor, for example, would only get one story of 12 square meters unit in the
walk-up apartment.
Another serious problem was the allocation of the unit’s location in the building. This was
because most households urged to stay in ground floor. After a long discussion, the
community agreed that the allocation would be done through a lottery, with the exception for
elderly and people with disabilities.

Learning from the experience, steps 5, 6 and 7 have been considerably changed to
accommodate the resident’s aspirations. Step 8; to re-house the 50 households in the Walk-up
apartment B; were accomplished in 1995 (Department of Regional and City Planning, ITB,
1996). The management failed to secure private sector participation and this resulted in the
changing of the plan. Maisonettes, which were supposed to be built by private sector, had to
be cancelled and replaced by new walk-up apartment (Block C) instead. The design of the
new walk-up apartment had been taken into account the informal sector activities by keeping
the ground floor open with no wall.

Yap Kioe Sheng (1992) asserted that the community’s participation must be used in the
implementation of land sharing for slum redevelopment. This is the crucial step for a
successful Enabling Strategy. In the case of Industri Dalam, the community’s participation, at
construction and early occupation phases, had been unsuccessfully implemented. After the
approval of the redevelopment proposal in 1989, the Centre began to discuss the plan with the
community. The first formal meeting was held in September 1990 to acquaint the community
to the redevelopment plan. After seven meetings from September 1990 to November 1990,
the Government assumed that the community had agreed with the plan. What was missing in
the negotiation was the agreement on the compensation for the buildings (houses) to be
demolished. The community felt helpless since they did not have legal status over the land
nor the building. On the other hand, the local government thought that they had been so
generous to grant the land and the compensation to the community. It seems that this matter
had not been made clear, hence, creating confusions and problems as the communities
thought that no agreement had been achieved. This became a latent trouble throughout the
reconstruction phase one.

During the construction period, there was almost no participation from the community. Apart
from the six people involved in the construction as workers and supervisors, people's
participation did not exist. After the occupying process, the problem was in the participation
of the community in maintaining the property. In a long-term project, such as Industri Dalam
Redevelopment, the maintenance of the walk-up apartment should not be left only to the
participation of the community. There was confusion on who should maintain the walk up
apartment due to the unclear responsibility in the organisation of the project and the limited

budget. Right after the occupation of the units, assisted by the EBSI, the community created
the so-called "Management Body" (Badan Pengelola). The responsibility of the management
body was to ensure the cleanliness and order of the walk-up apartment and its surrounding.
However, this body did not have any control over any construction damage such as leaking in
the roof or in the floor due to the miss-construction, therefore, the maintenance of the
construction seems neglected.

Another serious problem was the management failing to secure the private sector’s
participation for the redevelopment. Due to the minimum involvement of the private sector in
the preplanning and the planning stages, the private sector who had initially agreed to
participate in the redevelopment, resigned just before the project was started.

There were five financial sources expected to be utilised for financing the project: Firstly, the
National and/or Local Budget which was to be used as seed capital and bridging fund. These
funds were mainly used for infrastructure development, which actually was the responsibility
of the Government. Secondly, funds accumulated by the Co-operative 19 . Thirdly, Mortgage
Bank (BTN) or other financial institutions that could offer housing loan. Fourthly, funds from
other institutions that could give fund with low interest rate. Finally, funds accumulated by
the management body from selling part of the area for commercial uses.

To give a statutory basis for the above financial arrangement, the government issued a
Presidential Instruction No. 5 of 1990. The Instruction provides a legal basis for possible
financial arrangement for housing renewal/redevelopment of slum areas. The financial
arrangement stipulated in the Instruction is basically a scheme that encourages the partnership
of public sector and community and private sector. The scheme can be illustrated as the Chart

     There was an idea to organise the residents into a co-operative that would be able to secure funds from bank’s
     loan or from other activities.

                                             Chart I
                             Financial Scheme for Slum Upgrading
                          Based on Presidential Instruction No 5 of 1990

     National, Regional
     and Local budget                                                  Private sector
                                                                     Private Developer

      Public Developer
       PERUMNAS                         Urban renewal

                                        Cross subsidies

                               Residential           Commercial
                                 Area                  Area

                                Multi-storey          Commercial
                                  housing               building
                                development           development

                                    Management Body

                                                                           Local/ Municipal
                                 Rent/sale           Rent/Sale               Government

          Housing loan         Community                  Investor

          Bank/ Financial

Source: Adapted from Presidential Instruction No 5 of 1990

Considering the above assumptions, the initial financial proposal for Industri Dalam
Redevelopment as prepared by the Centre specified that the project in 1990 would need
approximately Rp. 2,619,263,000. (Approx. US$ 261,926). This was supposed to be funded
jointly between the private sector and the Government. (The private sectors were to buy part
of the land.) However, due to the unexpected cancellation of the private sector, the proposal

had to be changed. In 1991, a new proposal was prepared. The proposal specified the budget
with the following assumptions: First, the cost of land for housing and the cost of
infrastructure were excluded 20 . Second, compensations for the demolished houses were to be
re-invested and considered as the contribution of the community to the redevelopment and to
be used as down payment. The compensation was vary in individual value.

Based on the above assumptions, the project budget was as follows:
1)         Land Acquisition.                                             Rp.    935.214.000
2)         Temporary Resettlement.                                       Rp.    102.252.000
3)         Land Clearing and Infrastructure Development.                 Rp.    536.714.775
4)         Walk-up Apartment and Maisonette Development. Rp. 2,267,092,800
           TOTAL                                                         Rp. 3,841,273,575
                                                                         (Approx. US$ 384, 128)

This amount was to be funded by a loan from the Office of Ministry of Public Housing. The
repayment schedules were as follows: The compensation to be paid was Rp. 402,780,000
(Approx. US$ 40,278) will be paid by selling parts of the area (2,442 square meters 21 ). If the
land after redevelopment was assumed to have a value of Rp. 500,000/ square meters, the
total value of the land to be sold was 2.442 x 500,000 = Rp. 1,211,000, 000. (Approx. US$

The compensation will be reinvested as contribution from the community, which mean that
the money obtained from selling the land would still be the same. Thus, there was still Rp.
3,841,273,575 - Rp. 1,211,000, 000. = Rp. 2,630,273,575 (Approx. US$ 263,300) to be paid
by selling other land. (Centre for Human Settlements Research and Development, 1991)

This proposal was not sound particularly because it assumed that the reserved land could be
sold. In practise the land was not attractive for potential buyers. However, since the project

     The assumptions were the land was owned by the government, the infrastructure was to be funded by other
     government agency responsible for infrastructure development.
     These is the reserved land, see note in Table II

had to be carried on, the overall development fund was therefore acquired from National and
Local Budget. The consequences of this fact were:

1)      The construction depended on the National and Local Budget which were very
2)      As the National and Local Budget were actually a grant in nature, the executing
        agency would have no effort to repay the fund
3)      There was no replicability principle in such funding system

Citra Niaga Development Project
Citra Niaga Project in Samarinda, the capital city of the East Kalimantan Province, similar to
that of Bandung, is located in a central area. The location was previously a slum area, in
severely, unhealthy and neglected condition. This area, however, provides source of income
to the slum dwellers because of the existence of shopping area that accommodate informal
sector activities.

From 1971 until 1983 the area seemed to be ignored. The shopping area was on fire in 1971,
in 1975 and in 1979, resulted in even worst physical condition of the area. Plan to rebuilt the
area has never been realised because the government did not have sufficient funds to rebuild
the area, while the private sector, who might have been interested in redeveloping an inner-
city area, did not know how to deal with squatters who live in the area. On the other hand, the
inhabitants themselves were not motivated to built or to improve their environment due to the
their unclear tenure status to the land.

Fortunately, in 1983 the Governor of East Kalimantan Province had an idea to rebuild the
area in a sensible way. He wanted to develop an alternative commercial centre that could
accommodate both, the small traders and the big traders. To make his dream come true, he
set up a project team consisting of a developer, architects and NGO. The immediate task of
the team was to formulate programme by considering the following strategic issues (Sasono:

a. Samarinda as the capital city of East Kalimantan Province should show the spirit of
   modernisation without discrimination in all sectors of economic.
b. Development activities need to be undertaken to restore the image of Samarinda. Such
   activities, however, should also improve people’s participation in the development
c. The passive and apathetic attitude of the people of Samarinda should be transformed into
   active dynamism
d. A start should be made in one of the worst slum areas of the town. Here, new commercial
   facilities should be put up to start the process of transforming the town.

The team then came out with detailed objectives for the development as follows: (Sasono,
a. To create a place where the rich and the poor can live in mutual co-existence.
b. To accommodate all economic levels of population from the high to the low in a
   significantly different way to what is commonly practised such as the segregation of the
   low from the high income settlements and exclusive estate development
c. To innovate complex financing schemes through a mixture of ‘cross subsidy’, ‘self
   finance’, self-generating funds’ and ‘resource financing’.          It is based on a risk
   management strategy on how to reduce cost by reducing risk and therefore be able to
   attract a mutually beneficial development.
d. To understand real cost benefit analysis and to create a profitable business and yet include
   the usually ignored and forgotten social and ecological cost.
e. To create a mixed use/integrated development scheme consisting of housing, commercial
   and other recreational facilities.
f. To divide the project into phases to make it financing viable.

In short, within a four years period, by using land readjustment techniques, the area was
changed into an integrated and well planned mixed-use development It includes a shopping
centre, a street vendors centre, a community recreation centre and shop-houses. (Ismael and
Marulanda, 1992). This has been achieved with no eviction to the existing local residents. The
project received the Agha Khan Award in Cairo in 1989 in the category of Architecture for

The crucial step in this project was mobilising the people’s participation and particularly from
low- income people in the area. The participation was successfully conducted by the team
through out the development phases, from planning to implementation of the project
components. These included the improvement of the physical environment and the betterment
of the socio-economic condition of the vendors (Ismael and Marulanda, 1993). Several steps
had been taken to convince the affected vendors who were occupied the shopping area. These
included providing continuity of employment in the new developed area; legalising the spaces
for their businesses, and most of all was providing and improving access to credit and
affordable housing.

As in the case of Industri Dalam in Bandung, land for the Citra Niaga project is owned by the
Government. In exchange for the transfer of the right to manage the land, the developer who
participated in the scheme should build a good compound for the traders. The developer was
required to built 30 % of the area for low-income groups on condition that the street vendors
organised themselves in a co-operative for the construction of the trade centre. The developer
could then develop the remaining 70 % of area profitable for their business and made the
cross-subsidy. The developer was even able to develop all the property without government’
funding (Ismael and Marulanda, 1993). The developer also acted as the underwriter for the
loans for the informal sector co-operative.

The total cost and finance for the Citra Niaga Project at 1987 figure can be seen in Table VI.
The developer made cross-subsidy for the development of kiosks and informal sector
facilities in three phases. In total, out of Rp. 5.3 Billion total development cost (approx. US$
530,000), the developer handed 13.2 percent for cross-subsidy. This was taken out from the
profit in each phase of development.

Table VI Total Cost of the Project

Phase I                 Rp. 1.1 Billion                         US$     110,000
Phase II                Rp. 1.3 Billion                         US$     130,000
Phase III               Rp. 1.5 Billion                         US$     150,000

Sub Total                                  Rp. 3.9 Billion      US$     390,000

Other cost              Rp. 0.4 Billion                         US$       40,000
Tax                     Rp. 0.94 Billion                        US$       94,000

Total                                      Rp. 4.3 Billion      US$     514,000

Note : This figures include all fees but exclude tax and interest cost. The total
      interest cost was 160 million (approx. US$ 160).
Source: Adapted from Sasono (1996)

What is interesting was, almost all development costs for the project were paid by the
developer and the community. The important role of the government in this particular project
was the ability to act as facilitator, regulator and public administrator. This was done in
addition to the land contributed for development. The community, resident and the developer
carried out most of the development.

To ensure the continuity of the successful development, the project set up a Citra Niaga
Management Board that consists of the representative of users, owners and residents. This
semi-government type of organisation operates and maintains the services in the area,
promotes the centre of activities and regulates the coexistence of various groups for their
mutual benefit (Ismael and Marulanda, 1993). This board has now becoming a Self-Income-
Generating Unit of the local government

In 1996, the Citra Niaga Project has able to construct 294 unit houses out of 301 units
planned. The achievement of Citra Niaga project is not only in physical terms but also in
obtaining the co-operation of the community to support the idea. And this proved that with
careful assessment, slum rehabilitation in the inner city without eviction is possible.

The experiments have given some lessons, which can basically be focused as the followings:

Firstly, In Industri Dalam project, the decisive problem in financing the project was the over
expectation in assuming the participation of the formal private sector, while the community’s
ability to pay was almost ignored. On the other hand, the essential requirement for dealing
with a private investor such as clear ownership or title over the land was not properly
prepared. Furthermore, to encourage the participation of private sector, the physical plan of
the area should have been sufficient enough to ensure that the land designated for private
investment is accessible and is provided with good infrastructure. In the case of Industri
Dalam this aspect seemed to have been miscalculated, due to the lack of support from other
agencies. One of the reasons why the private investor was not interested to invest in the area
was the low accessibility of the area to the public.

On the contrary in Citra Niaga project the participation of a private developer had been
secured from the beginning. The transfer of government right to the land to the developer was
the starting point for the involvement of the developer. Which then, together with the
community, the government and the NGO, the developer could successfully formulating the
strategy, the plan and the implementation of the project.

Secondly, The Institutions who executed the Industri Dalam project should have had the
political backing that was needed to ensure the inter-agencies co-operation particularly from
those who were responsible for providing utilities and issuing land title. The effort to improve
housing and living condition of low-income settlements requires action from many different
agencies or ministries. Furthermore, with the political back up, the institutions would have
more space to encourage people's participation, both from the community and from the formal
private investor that was needed to finance the project.

Unlike the Citra Niaga project, in the Industri Dalam case, the Institutions’ role and
responsibility were not clearly defined. This condition had been the cause of the awkward
implementation of the project. The communities thought that the Centre was the only
Institution who was responsible for the reconstruction. This was because in the beginning, it
was the Centre who approached them either in a formal or in an informal way to accept the

idea of the redevelopment. The Centre had also approached the community to organise
themselves to decide what exactly their needs are. The Centre adopted the concept of
"enabling" by encouraging the community to decide what they need and helping the
community to get funding for redevelopment. However, this was not properly done by the
new institution (EBSI). Approach to the formal private investor was not successfully done
and this had caused the delay of the project. Therefore, it was decided to acquire funding from
National and Local budget.

In the Industri Dalam the delay and the awkward implementation of the project had decreased
the community’s confidence into the project down at the lowest level. However, since the
community could not see any other alternatives, they still tried to accept the condition. It was,
therefore, the task of the new institution to rise up the confidence of the community to the
level where they could actively participate in the maintenance and in the next phase of
development. A participatory research conducted by the Department of Regional and City
Planning from 1993 to 1994 reveals that the community’s sense of belonging to the apartment
is very low due to the unclear occupancy right to the units. (Winarso, 1994)

Citra Niaga Management Board, in the contrast, had successfully accommodated the interest
of the developer, the user and the resident in a healthy participation for their mutual benefit.
This was because the project management has the necessary power to buy, sell or lease the
land or property and the power to acquire funds independently. With this power, the
management was able to negotiate openly, to the users and to the community they serve to
ensure that all parties involved benefited from the redevelopment. The management should be
accountable to every party so that the financial aspect of the project could be clearly seen.

Thirdly, the crucial problems faced in the Industri Dalam project, as the proofs of the
importance of such supports, were the weakly planned budget estimates and the unclear
responsibility of the project management. Had the private investment come as planned and
the management body been clearly defined, the project would have been finished by 1997.
This shows the confusion of the role of the actors involved in such an approach.

On the contrary, in the case of Citra Niaga, the budget estimation and plan were meticulously
prepared. The cash flow was carefully worked out and monitored. The developer of Citra

Niaga project says that he earns a rate of return of 27 % before tax, which is high, compared
with the saving interest of 16% at that time.

Basically there are three principle agents involved in the production, maintenance and the
management of housing (UNCHS, 1989). They are; the public sector (central and local
government), private sector (formal and informal sector), and community sector (NGOs and
CBOs). Early experience with, for instance, site and services as providing projects,
professionals working for the public sector hardly ever met the people they wanted to be
housed. Most of their times were probably spent in the office, behind their desk, along with
the architects. Entrepreneurship was not used in designing site and services projects. On the
contrary, the enabling approach is based on the premise that all citizens have a fundamental
right to participate in decisions and actions which affect their living and working environment
(UNCHS, 1989). Therefore, community participation is the basic element for the success of
the project. Thus, professionals working in slum upgrading projects need to be equipped not
only with the ability to encourage people's participation but also with the ability to think as an

The private sector, as their main interest is in making a profit, will only enter the housing
market if they are certain that it can generate a return on their investment over and above the
costs they might spend. Thus, unless low-income housing can provide private sector with
financial guarantees, they would not be attracted to invest in low income housing production.
This is the reason why there is almost no involvement of private sector in the production of
low income housing --perhaps with the exception of Bangkok case 22 -- although it was
thought that site and services could trigger private investment through self-help housing. The
community sector, on the other hand, operated on voluntary bases within their own
framework. They fill gaps in the services of public sector. In doing so, the community sectors
were able to mobilise labour and skill from their own and even to raise funds for their

     Study by Angel, S and Chuated, S. (1986) suggest that private sector land and housing market is moving
     towards the mass marketing of housing by building low income housing. This was viewed as an efficient
     land and housing market by Dowall (1989)

Fourthly, in the particular case of slum upgrading such as Industri Dalam and Citra Niaga
projects, basically four phases of activity that can be identified: preparation, construction,
occupying and maintenance. In each phase, the involvement of all parties was particularly
important, although might not necessarily be in the same degree. At the preparation phase, the
role of the public sector should be changed from being "authoritarian" in the decision
concerning site selection, level of servicing, distribution of facilities, type and standard of
construction, and who would be the beneficiaries. The emphasis should be towards more
"democratic" decision making based on the argument that "only household themselves can
rank expenditure on housing over the other calls on their scarce resources" (Wakely and
Aliani, 1996).

The private sectors, as they are only concerned with "return on investment," their involvement
at this phase is also important. Private sectors should be assured that their involvements will
not only benefit low-income people but will also provide a competitive profit for themselves.
In this phase, the "enterpreuneurship" of the private sector is needed for the decision-making
process. Formal private sectors would participate only if they can clearly see what benefit
they can get, therefore, participation of the formal private sector should be encouraged from
the beginning of the project. The art of the planning then is to combine the needs of each
actor: the low income community, the private sector and the government in a public-private-
community partnerships which is encouraged not only because of the limit on government
funding, but also to share social responsibility among other parties.

Meanwhile, the community sectors are needed to assist the low-income people with the
technical knowledge to evaluate the cost and benefits of alternatives. At the construction
phase, the public sector should work closely with the private sector, community sector and the
people, to ensure that the constructions are done according to what has been agreed. The
people should have the authority over who does the construction on their behalf. At the
occupying and maintenance phase, the parties involved have to work toward a good
management of the community’s asset, so that maintenance of the asset is done in the most
effective way.

Finally, for inner city squatter settlements, and particularly where the Government owns the
land, an "enabling" strategy as implemented in Industri Dalam and Citra Niaga is still

believed to be in the right direction despite the fact that the implementation has not always
smooth. This strategy can be justified in two-folds. Firstly, this strategy does not neglect the
low-income people, and secondly this strategy can enhance the physical as well as the socio-
economic quality of inner-city area. The projects also shows that land sharing and land re-
adjustment techniques, which to a greater extent have been adopted in the projects, are
efficient ways to improve the housing condition of the urban poor, a reconfirmation for what
scholars have written. However, the techniques will remain useless without sound
institutional and financial support, and most of all, the participation of the community itself.


A. Location of the Industri Dalam Project in Bandung

B. Location of the Citra Niaga Project

Aerial view from the east of Samarinda

Site Plan of Citra Niaga, Samarinda


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