Real Estate Market in Indonesia - Growth, Trends, COVID-19 Impact, and Forecast (2022 - 2027)
Residential real estate in Indonesia is expected to grow with a single-digit CAGR during the forecast period.
Indonesia improved its macro-economic and structural policies over the last 15 years. Its economy, with a strong and stable growth rate, is catching up with other countries in the region and allowing Indonesia to focus on its development agenda. As property prices and demand rise due to rapid population growth and high urbanization, the real estate market in Indonesia is now one of the strongest sectors in the region. The real estate sector in Indonesia is one of the few sectors that were not greatly affected by the COVID-19 crisis. The official figures from Statistics Indonesia reflected that the gross domestic product (GDP) from real estate activities in Indonesia amounted to IDR 468.22 trillion in 2021. Indonesian GDP derived from real estate activities has gradually increased since 2014.
The affordable housing projects in Indonesia supported by the government, foreign investors, and associations such as World Bank are anticipated to enhance the real estate market growth during the forecast period. The Indonesian government introduced the ‘One Million Houses’ (OMH) program to construct at least 1 million units per year. According to the Ministry of Public Works and Public Housing (PUPR), under the One Million Houses program, about 312,290 housing units were recorded until the end of May 2021.
Due to a better, growth-stimulating economy, the first wave of Proptech in Indonesia began with an increase in demand for homes from the middle-class populace. With a large concentration of selling, purchasing, and leasing on search portal firms, the segment of Proptech is gaining popularity.
The country's biggest immediate challenge in 2022 is to overcome the COVID-19 post-pandemic economic, social, and public health effects. The unemployment rate has risen substantially from 5.2% in 2019 to 7.1% in 2020 and 6.6 % in 2021, despite declining over the prior decade.
Key Market TrendsJakarta Emerging as a Prime Rental MarketDespite the rapid growth of the Indonesian property market in recent years, houses and apartments are still among the cheapest in the region. As per market estimates, higher-end apartments in Jakarta ranged from around USD 2,500 to USD 2,800 per square meter (sq. m) in 2019.
Increasing disposable incomes and migration of Indonesians to Jakarta in search of better employment make Jakarta an attractive rental market for both buyers and investors. Some developers started to introduce their new projects in Q1 2021. Unfortunately, the demand growth in the market remains sluggish, making it hard to revise the asking prices.
The COVID-19 pandemic has adversely affected Indonesia’s real estate sector, with the Indonesian Central Bank reporting that real estate prices fell by 0.2% in 2020 and that residential property sales plummeted by 30.9% from a year earlier in Q3 2020, following Y-o-Y declines of 25.6% in Q2 and 43.2% in Q1. However, the government set out some stimuli for the residential property sector, including the property relaxation norm from the Central Bank coupled with the foreign ownership regulation, which is likely to bode well for developers and property demand.
The office market in Jakarta is still in a position of rebalancing. Vacant space is increasing, and rents continue to decline. However, many industry stakeholders foresee 2022 as the prominent growth year for commercial spaces in Indonesia. Landlords are expected to play an important role in the market recovery, which is more flexible in responding to market needs, especially considering that lease agreements are expected to become shorter due to continued uncertainty.
Rising Residential Property Sales in IndonesiaIn Indonesia, the rapid economic growth in the construction industry and subsequent development of the real estate sector are driven by five major urban systems Jakarta, Surabaya, Bandung, Bekasi, and Medan, with their high growth and industrial concentration attracting the shift of population within these cities and surrounding areas.
Bali has seen great growth in property prices in the past decade, owing to increasingly more tourists and foreign property buyers. According to local experts, freehold prices have decreased by as much as 25% in places like Bali during the pandemic. The implementation of relaxed foreign ownership regulations will most likely capture the Indonesian market.
Another key point is increased infrastructure investments and connectivity between cities and areas. Prospective buyers seem to have no concern about investing in units further away from the city centers, as long as the areas are supported by public transport and the routes are reasonable.
Indonesia invests heavily in big infrastructure projects in hubs like Jakarta. Some of the new projects in Jakarta include the new Jakarta MRT and LRT projects, Jakarta to Bandung High-Speed Rail, the Ring Roads, and more.
In the fourth quarter of 2021, property sales for medium houses in Indonesia increased by 11.26%. During the COVID-19 lockdown, most people needed to stay at home, which led to their decision to look for a house with more rooms to live in and work separately. Furthermore, the latest Bank Indonesia Residential Property Price Survey reported a moderate residential property price rise in the fourth quarter of 2021, as evidenced by a 1.47% (Y-o-Y) increase in the Residential Property Price Index (RPPI), up from 1.41% (Y-o-Y) the previous quarter.
Competitive LandscapeThe Indonesian real estate market, including both residential and commercial, is highly competitive. Some of the major players present in the market include Agung Podomoro Land, Sinar Mas Land, Ciptura Group, and Tokyu Land Indonesia. The players are also adapting to technological trends, owing to the rising internet penetration and expansion of e-commerce.
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