Nominal property price figures can be misleading in Indonesia, because inflation has been high (although now slowing). Residential property has been attractive to rich Indonesians and others partly as a protection against inflation.
All Indonesia’s major cities saw nominal property price rises during the year to Q2 2016. Batam led the price hikes with house prices rising by 10.65% (6.9% inflation-adjusted) during the year to Q2 2016. It was followed by Bandar Lampung (8.46%), Palembang (7.95%), Medan (6.25%), Bandung (5.77%), Makassar (5.66%), Banjarmasin (5.36%), Manado (5.27%), Surabaya (4.28%), and Padang (3.93%).
Some cities registered nominal price rises so small that in fact they were actually declines in value, in real terms.
Jabodebek-Banten, which includes Jakarta’s component cities (acronym: Jakarta, Bogor, Depok and Bekasi), saw an after-inflation price drop of around 2.47% y-o-y in Q2 2016. Other cities with real price declines included Pontianak (-1.77%), Yogyakarta (-1.28%), Denpasar (-0.99%), Balikpapan (-0.77%), and Semarang (-0.45%).
Prices of strata title apartments in Jakarta range from US$ 3,645 per square metre (sq. m.) in Jakarta CBD, US$ 2,746 in South Jakarta, and US$ 1,764 in the capital’s non-prime areas, according to Colliers International.
The recent surge in residential property sales decelerated sharply in Q1 2016. From robust quarterly growth rates of 40.07% in Q4 2014 and 26.62% in Q1 2015, property sales growth slowed to just 6.02% in Q4 2015 and 1.51% in Q1 2016, according to Bank Indonesia. The slowdown in sales affected all house types, with small-sized houses being the most affected.
Around 26,583 apartments units are expected to be completed in Jakarta this year.
Analysis of Indonesia Residential Property Market »
Jakarta's property market now looks well-priced.
Higher end apartments in Jakarta are now priced at around US$ 2,650 to US$2,900 per square metre (sq. m.). Rental yields on these apartments are now around 8.6% to 9.6%, and have risen over the past two years.
The disadvantage of buying in Jakarta, for foreigners, is complex legalities and high transaction costs. However, changes in the law are in process which should make things much easier.
Villas on Bali attractively priced at around US$1,100 to US$2,300 per sq. m.. On Bali, lower rental yields can be earned, at from 3.8% to 5.0%.
Round trip transaction costs are high in Indonesia. See our Property transaction costs analysis in Indonesia and Property transaction costs in Indonesia, compared to the rest of Asia.
Capital Gains: Gains derived by nonresident individuals from selling real property are taxed at a flat rate of 5%, which levied on the transaction value.
Inheritance: There is no inheritance tax.
Residents: Residents are taxed on their worldwide income at progressive rates, from 5% to 30%.
The buyer pays for the 5% transfer tax, legal fees, and registration fees. The seller pays for the 5% land and building transfer duty (which is different from the transfer tax) and 5% agent’s fee.
Rent: Rents are freely negotiable. They are typically paid in advance for the duration of the lease agreement. However tenants are often able to negotiate smaller advance payments, or monthly payments.
Tenant Security: Lease periods typically vary from 1 to 3 years. The terms depend upon the bargaining skills of the tenant and the landlord. Tenants typically have an option to renew.
In the first quarter of 2016, Indonesia’s economy grew by a robust 4.9% from a year earlier, thanks to strong private consumption.
Economic growth is expected to accelerate to 5.09% this year, on the back of higher commodity prices and repatriated assets from tax amnesty program, according to Bank Indonesia.
In February 2016, unemployment dropped slightly to 5.5%, from 5.81% a year earlier, according to the country’s statistics agency, BadanPusatStatistik Indonesia (BPS). However the decline was mainly due to a drop in the country’s workforce – from 128.3 million people in February 2015 to 127.8 million people in February 2016. There were 7.02 million unemployed people in Indonesia in February 2016, down from 7.45 million people in the previous year.
Inflation was 3.45% in June 2016, sharply down from 7.26% in a year earlier, according to BPS. From an average of 9.5% from 2001 to 2008, inflation dropped to an annual average of 5.5% from 2009 to 2015, according to the IMF. The overall decline in inflation suggests that the recent stepping-up in the key interest rate has worked, and that Indonesia’s growing economy is becoming more flexible and productive as it grows.
Inflation is expected to be within the central bank’s target range of 3% to 5% in 2016.