Indonesia: Price History

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Construction boom in Indonesia

Indonesia is in the grip of a building boom. Condominiums, offices, malls, mixed use complexes and even whole townships are in various stages of construction - from the heart of downtown Jakarta, to the most distant suburban fringes, on throughout the country.

It’s been powered by a steadily recovering economy, and by declining interest rates. Economic growth was 6.3% in 2007, which was the fastest this century. And with mortgage interest rates falling to an unprecedented 8.8%, down from 12%-14% a few years ago, there is still potential for more growth. Unsurprisingly on the stock market property counters have strongly outpaced the general market.

Certainly the construction industry has been happy. No less than 83.3% of Indonesia’s gross fixed capital formation last year was spent on buildings, compared to only 10.5% spent on machinery and equipment, something noticed by the economist Michael Taylor in Asia Sentinel. As he points out, this is an extraordinarily high ratio of investment spending, and compares to a mere 32.9% in Thailand, 52.9% in the Philippines, and 44% in China.

Yet despite, or rather perhaps because of this, house prices barely rose. True, the perception in Indonesia is that new records are daily being hit at the launch of new projects, but a large part of this is marketing hype. In reality residential prices rose by only 5.40% in Indonesia in 2007, and fell by 1.24% in real terms (New Houses Index) In contrast the 2006 figures were slightly better - a 6.60% nominal price rise, and a 0.52% real price rise. The house price index is still about 50% below its 1994 peak in real terms.

A striking fact is the different performance of small houses as opposed to large. Small houses have risen in value by over 90% since 2000 (in nominal terms) while large units have only appreciated by under 40%.

In real terms the residential property price index has suffered an almost continuous decline in real terms since 1994, dramatically accelerating from 1998 to 1999. In the early 2000s, the Indonesian economy stabilized, and inflation was reduced to 3.8% in 2000. The Indonesian house price index rose 13.6% in real terms from 1999 to 2003.

However then a series of man-made and natural disasters indermined the recovery short. Pushed by rising global oil prices, Indonesia’s consumer price index rose 10.5% in 2005. Corrected for inflation, Indonesia’s house prices actually fell 8.4% in 2005.

Bomb attacks in Bali killed 202 people in 2002 and 23 people in 2005. A car bomb in Jakarta killed 14 people in 2003; another car bomb killed nine and injured more than 180 in 2004. In 2004, the Asian Tsunami left 168,000 people dead in Aceh and other places in Northern Sumatra. Another 500,000 were left homeless. In July 2006, a tsunami and earthquake struck South Java, leaving nearly 700 people dead, 120 missing, 1,800 injured and 42,639 homeless.

The election of President Susilo Bambang Yudhoyono in 2004 has generally led to a revival of confidence, despite complaints that his strong anti-corruption stance in the election campaign has not translated into visible progress.

Roundtrip costs in Indonesia are among the highest in Asia. High rental income and value added taxes also handicap the real estate market. However, none of this seems to have given much pause to the developers, who are building as if they were going to run out of cement.

Indonesia - more data and information

• Indonesian house prices, rents, and letting income - real data!
• How expensive are houses in Indonesia, compared to the rest of Asia?
• How much rent can be earned from Indonesian property, compared to the rest of Asia?

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