Indonesia’s housing market remains stable

Indonesia’s residential property market remains more or less steady, with the composite-16 property price index rising by only 1.74% during 2023, following y-o-y growth of 2% in 2022, 1.47% in 2021, 1.43% in 2020, and 1.77% in 2019, according to Bank Indonesia. Property prices declined by 0.92% last year when adjusted for inflation.

During the latest quarter, residential property prices rose by a minuscule 0.13% q-o-q (fell slightly by 0.55% inflation-adjusted) in Q4 2023.

Looking at the longer term, the property market has hardly moved, with prices up by just 15.82% from 2016 to 2023. In real terms, prices fell by a cumulative 5.85% over the same period.

“The landscape of apartment buyers is currently dominated by end-users, while individual investors, targeting attractive capital gains and recurring income, continue to adopt a wait-and-see approach, anticipating a more favorable situation,” said Colliers International.

“In terms of supply, competition has not escalated, as evidenced by the absence of new project launches, underscoring the stagnant state of the apartment market. Developers are prioritizing the clearance of unsold stocks, keeping prices essentially flat. Their focus is on boosting sales through enticing discounts and promotions rather than raising prices,” Colliers added.

Indonesia’s house price annual change

When inflation is considered, only two of the eighteen major Indonesian cities recorded house price increases in Q4 2023 compared to the same period last year.

Major Cities Y-O-Y Change (%) Q-O-Q Change (%)
Nominal Real Nominal Real
Bandung 0.73 -1.90 0.62 -0.07
Bandar Lampung 2.56 -0.12 0.42 -0.27
Banjarmasin 0.70 -1.93 0.64 -0.05
Denpasar 0.43 -2.19 -0.28 -0.96
Palembang 1.29 -1.35 1.30 0.61
Semarang 0.79 -1.84 0.32 -0.37
Yogyakarta 0.77 -1.86 1.45 0.76
Padang 1.85 -0.81 0.72 0.03
Medan 0.86 -1.77 1.16 0.46
Makassar 1.52 -1.13 0.88 0.19
Manado 0.32 -2.30 0.22 -0.47
Surabaya 0.87 -1.76 -0.26 -0.94
Pontianak 3.57 0.87 -2.80 -3.46
Batam 4.09 1.37 1.78 1.08
Balikpapan 0.78 -1.85 -0.22 -0.90
Jabodebek-Banten 2.56 -0.12 0.95 0.26
Pekanbaru 0.33 -2.29 3.20 2.50
Samarinda 1.07 -1.57 1.00 0.31
Composite in 18 Cities 1.74 -0.92 0.53 -0.15
Sources: Bank Indonesia, Global Property Guide

Demand is rising modestly. In Q4 2023, residential property sales rose by 3.27% from a year earlier, in contrast to the y-o-y decline of 6.59% in the previous quarter, according to Bank Indonesia.

Residential construction activity is gaining momentum. As of Q4 2023, the total supply of apartments in Jakarta stood at 225,977 units, up by 1% from the previous quarter and 2.51% from a year earlier. According to Colliers, the number of units completed during 2023 is almost four times higher than in the prior year, which indicates that most of the projects delayed in recent years due to the Covid-19 pandemic have finally been completed.

The wider economy remains strong. Indonesia’s economy was estimated to have expanded by around 5% during 2023, following annual growth of 5.3% in 2022 and 3.7% in 2021 and a pandemic-induced contraction of 2.1% in 2020.

The International Monetary Fund (IMF) expects the Indonesian economy to grow by 5% annually in the next two years while The World Bank’s real GDP growth projection for the country is not significantly different, at an average of 4.9% over 2024-2026.

Jakarta’s apartment prices are steady

In Jakarta, prices of apartments rose by a minuscule 0.67% y-o-y to IDR 35.6 million (US$2,263) per sq. m. in Q4 2023, according to Colliers International. Over the same period:

  • In Jakarta CBD, the average price of strata title apartments rose slightly by 0.27% y-o-y to IDR 52.85 million (US$3,358) per sq. m. in Q4 2023.
  • In South Jakarta, the average price of strata title apartments rose by 1.3% y-o-y to IDR 40.38 million (US$2,565) per sq. m. in Q4 2023.
  • In the capital’s non-prime areas, the average price of strata title apartments was up by a meager 0.45% y-o-y to IDR 27.06 million (US$1,719) per sq. m. over the same period.
Area Average price (IDR/sqm) Average price (USD/sqm) y-o-y change (%) q-o-q change (%)
CBD 52,845,027 3,358 0.27 0.00
South Jakarta 40,367,101 2,565 1.30 0.33
Non-prime areas 27,056,750 1,719 0.45 0.00
Average 35,600,000 2,262 0.67 0.11
Sources: Colliers International, Global Property Guide

Indonesia House Price Indices in the Five Largest Cities graph

Demand shows signs of improvement, stimulus measures introduced

Demand is rising modestly. In Q4 2023, residential property sales rose by a modest 3.27% from a year earlier, in contrast to the y-o-y decline of 6.59% in the previous quarter, according to Bank Indonesia.

“This was driven by higher sales of all residential property types in the fourth quarter of 2023, particularly medium (6.29% yoy) and large (19.93% mtm) residences. On the other hand, sales of small houses improved but remained in contractionary territory, declining 1.60% (yoy) in the reporting period,” said Bank Indonesia.

Demand is expected to be buoyed by the recent introduction of several housing market stimulus measures. Recently, the Omnibus Law introduced two initiatives to attract foreign investors, including the simplification of qualification for property purchases, and the upgrade of the type of titles that foreigners can hold – from the previously limited Hak Pakai (Right to Use) to Hak Guna Bangunan (Right to Build).

Last year, the Ministry of Finance issued regulation PMK 120/2023, extending the value-added tax (VAT) incentive program. The VAT subsidy, which applies to all residential properties priced up to IDR 5 billion (US$317,709), amounts to 11% until June 2024 and 5.5% from June to December 2024. Currently, there are 10,581 units eligible for the incentive.

Moreover, the extension of the loan-to-value (LTV) ratio relaxation policy is still in effect until the end of 2024.

“On the demand side, there is a glimmer of confidence, particularly for 2024, driven by the reintroduction of the VAT incentive, which is expected to boost sales performance,” said Colliers. “We believe that the most significant impact will be on existing apartment projects, especially those in the middle-low segments. Furthermore, with approximately 50% of units priced below IDR 2 billion, we are optimistic that this incentive could lead to the sale of at least 5,000 units in 2024.”

The average take-up rate for apartments in Jakarta stood at 88.12% in Q4 2023, up by 0.8% from the same period last year, according to Colliers International.

Recovering tourism may boost the property market

Tourism continues to recover, with the total number of international visitor arrivals soaring by 98.3% y-o-y to 11.68 million people during 2023. This is also far higher than the 7.4 million target set by the Tourism and Creative Economy Ministry in early 2023 and the 8.5 million set in mid-2023.

“If compared to our target, it is almost double the lower limit target, 40 percent above the upper limit target,” said Tourism and Creative Economy Minister Sandiaga Salahuddin Uno.

Yet it remains below the record-high of 16.1 million arrivals registered in 2019 before the Covid-19 pandemic. Arrivals plunged to just 4 million in 2020 and 1.56 million in 2021, mainly due to pandemic-related travel restrictions.

In response to the high number of tourist arrivals in recent months, the government raised its target for foreign tourist arrivals this year from 14.3 million to 17 million visitors.

Bali, one of the world’s top tourist destinations, saw its tourist arrivals surge to 5.23 million people in 2023. Arrivals in Bali were dominated by Australians, who account for about 25%, followed by tourists from India, mainland China, the UK, the USA, South Korea, France, Singapore, Germany, and Malaysia.

Bali aims to attract about 7 million tourists in 2024.

The recovering tourism sector, especially in Bali, is expected to provide a further boost to the property market. An estimated 30,000 expatriates live in Bali.

Indonesia Tourist Arrivals graph

Jakarta’s residential construction activity increasing

In Jakarta’s apartment market, the total number of completions during 2023 increased by almost four times as compared to the prior year, according to Colliers International. This was mainly due to the completion of the projects that have been delayed in the past years due to the Covid-19 pandemic.

“At the same time, developers have not launched any new apartment projects, choosing instead to prioritize the seamless continuation of ongoing construction projects. This strategic decision aims to foster trust among current and potential buyers while focusing on depleting existing ready-to-sell stock,” said Colliers.

As of Q4 2023, the total supply of apartments in Jakarta stood at 225,977 units, up by 1% from the previous quarter and by 2.51% from a year earlier.

Accordingly, an additional 9,743 units are expected to be completed in the next three years. The projected new supply will be mostly located in South Jakarta and East Jakarta. There are only several small developments in the CBD because of high prices and limited available land, driving both developers and homebuyers to consider development projects outside the CBD.

Apartment Name Location Region Developer No. of Units
Cleon Park Apartment (North Tower) Cakung, Jakarta Garden City East Jakarta Modern Land Realty 310
Pluit Seaview (Ibiza Tower) Pluit North Jakarta Binakarya Propertindo 500
Antasari Place (was 45 Antasari) (Tower 1) Antasari South Jakarta Prospek Duta Sukses 980
Asthana Kemang (Sadewa Tower) Jl. Ampera Raya No.17 South Jakarta PT. Synthesis Development 362
Branz Mega Kuningan Mega Kuningan CBD Tokyuland 482
LRT City Ciracas - Urban Signature (Azure Tower) Jl. Pengantin Ali, Ciracas East Jakarta Adhi Karya 1087
The Newton 2 at Ciputra World 2 Jl. Karet Sawah CBD Ciputra 624
Apple Residence 3 Jl. Karang Indah, Lebak Bulus South Jakarta PT Diamond Land Development 530
Vittoria Residence (Tower Citrine) Jl. Daan Mogot West Jakarta PT. Duta Indah Kencana 312
Arumaya Garden Villa TB Simatupang South Jakarta Astra Land 59
South Quarter Residence (Tower E) TB Simatupang >South Jakarta Intiland 336
Source: Colliers International

Tapera public housing savings program

Recently, the government enacted a law on public housing savings (Tabungan Perumahan Rakyat – Tapera) to create a new housing fund (BP Tapera) to help workers finance the purchase, construction, or renovation of their first home. All formal workers and individuals with monthly salaries at least equal to the minimum wage must contribute 3% of their pay (2.5% from employees and 0.5% from employers).

However, contribution will be voluntary for private sector companies for the first seven years, until 2028.

The new housing fund officially took effect on January 1, 2021.

Participants have the option to withdraw up to 30% of their fund balance for the purchase of a home or up to 10% for construction or improvements. In addition, those who have already made at least 12 consecutive monthly contributions will have the option to take out home loans from BP Tapera at interest rates of no greater than 5% per year.

In the second semester of 2023, BP Tapera announced the distribution of 111,591 subsidized housing assistance funds worth IDR 12.12 trillion (US$770.89 million). For the whole year of 2023, the distribution target was 229,000 units worth IDR 25.18 trillion (US$1.6 billion).

The program is in line with the government’s program to build one million houses annually.

Indonesia adopts more liberal foreign ownership rules

Recently, Government Regulation No. 18 of 2021 on the Right to Manage, Right over Land, Strata Titles, and Land Registration became effective, amending Government Regulation No. 103 of 2015. The new regulation finally allows foreigners and foreign legal entities to own apartments in Indonesia.

However, foreigners will only be able to own apartments in designated special economic zones, free trade zones, industrial estates, and other economic zones. Moreover, the property must be worth more than the minimum threshold, which differs depending on the province where it is located.

Accordingly, under the previous law, foreigners were only able to own land under the Right to Use land title and strata title right to use apartment units or SHPSRS (“sertifikat hak pakai atas satuan rumah susun”). GR 18/21 officially allows foreigners to own strata title rights of ownership of apartment units too.

“Ownership rights to apartment units are granted to Indonesian citizens; Indonesian legal entities; foreigners who have permits in accordance with the provisions of laws and regulations; foreign legal entities that have representatives in Indonesia; or representatives of foreign countries and international institutions that are or have representatives in Indonesia,” reads the full article 67.

Recently, the qualification for property purchases by foreign buyers was simplified – allowing them to buy property using only a passport and/or visa. Previously, foreigners are required to provide proof of a limited or permanent stay permit (KITAS/KITAP). The type of titles that foreigners can hold was also upgraded from the previously limited Hak Pakai (Right to Use) to Hak Guna Bangunan (Right to Build).

Earlier, in October 2020, the Omnibus Law on Job Creation was passed, which seeks to leverage foreign property investment as one of the pillars to stimulate economic growth after the pandemic.

“The potential of a foreigner being allowed to hold a (right-to-build) title in line with Indonesian citizens is a game changer. If it also allows for foreigners to mortgage in Indonesia it will open up a much larger market than in the past when it was all cash-driven,” said Terje Nilsen, CEO of Seven Stones Indonesia. “This will encourage foreigners to choose Indonesia as a first or second home option. Especially now when more and more people work from home. And they can call Bali, and other places in Indonesia home.”

Before the recent measures, the last major liberalization came in December 2015, when GR 103/2015 on House Ownership of Foreigners Residing in Indonesia allowed foreigners to own landed houses in Indonesia for a period up to 80 years. Under the law, foreigners can purchase a landed house or an apartment under the so-called “right-of-use” (hak pakai) title for an initial period of 30 years. The foreigner can extend the ownership twice - by 20 years and then by another 30 years. However, if the foreigner (or his heir) leaves Indonesia to reside in another country, then he/she needs to release or transfer the ownership rights to another person who meets all requirements.

Interest rates rising

Bank Indonesia kept its key rate unchanged at 6.00% in February 2024, following seven consecutive rate hikes since August 2022, in an effort to maintain price stability amidst overshooting inflation expectations. The central bank also maintained the deposit facility (DF) and lending facility (LF) rates at 5.25% and 6.75%, respectively.

“The decision to hold the BI Rate at 6,00% remains consistent with the pro-stability focus of monetary policy, namely to strengthen rupiah stabilization policy, and as a pre-emptive and forward-looking measure to maintain inflation within the 2.5%±1% target corridor in 2024,” said the central bank.

Following the BI’s move, mortgage interest rates in Indonesia have also increased in recent months. Currently, mortgage interest rates range from 8% to 10%.

Indonesia Key Interest Rates graph

Mortgage market continues to grow

Despite rising interest rates, the total amount of outstanding residential mortgage loans – including loans for housing, flats, and apartments – drawn to households rose strongly by 12.2% y-o-y to IDR 689.28 trillion (US$43.88 billion) during 2023, according to figures from Bank Indonesia. This is at par with the average growth of nearly 12% annually from 2012 to 2022.

By type of financial institution, during 2023:

  • State banks: IDR 389.75 trillion (US$24.81 billion) residential mortgage loans, up 13.7% from a year earlier
  • Regional government banks: IDR 29.77 trillion (US$1.9 billion), up 8.6% from the previous year
  • Private national banks: IDR 266.47 trillion (US$16.96 billion), up by 9.7% from the previous year
  • Foreign banks and joint banks: IDR 1.19 trillion (US$76 million), down by 17.6% from the prior year

Despite this, the ratio of mortgage credits to GDP remains very small, at around 3.2% in 2023, barely changing in the past decade, based on figures from the Global Property Guide.

Indonesian developers find financing challenging. Memories of the Asian crisis are still alive. Banks tend to be extremely cautious in extending housing loans to the real estate industry, although Indonesian banks are strong and adequately capitalized. The increased uncertainty brought by the pandemic, Russia’s invasion of Ukraine, and global supply chain disruptions have exacerbated the situation in recent years.

That’s why as of Q4 2023:

  • 72.82% of residential property development projects were financed internally
  • Only 16.07% were financed through bank loans
  • 7.14% of projects were financed by consumer payments (pre-selling)

Indonesia Housing Loans Outstanding graph

Rental yields are moderate, rents remain steady

Gross rental yields on high-end properties in Indonesia average 5.68% in Q1 2024, according to a recent Global Property Guide research. Yet due to strong demand for high-end apartments, prices have risen significantly in recent years, eventually resulting in lower rental yields than the 10% to 13% yields prevailing eight years ago.

Gross rental yields – the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs – are an important consideration because a high rental yield indicates that the property market is reasonably priced.

In Q1 2024:

  • In Jakarta, gross rental yields on apartments range from as low as 1.67% to as high as 9.12%, depending on location. The city´s average rental yield stands at 5.4%.
  • In South Tangerang, rental yields range from 4.8% to 6.83%, with a city average of 5.75%.
  • In Surabaya, apartments offer rental returns from 3.81% to 8.33%, with a city average of 6.47%.
  • In Tangerang, rental yields range from 4.39% to 5.56%, with a city average of 5.13%.

Rents are stable in Jakarta, amidst steady occupancy rates. Currently, rents for apartments remain at a monthly average of IDR 445,986 (US$28.4) per sqm in the CBD and at IDR 406,164 (US$25.9) per sqm in South Jakarta, according to Colliers International.

“As of Q4 2023, the occupancy rate in the Jakarta serviced apartment market remained relatively stable at 60.4%. The primary demand driver continues to be short-stay leisure guests, particularly those attracted to newly opened projects where operators typically offer promotions and discounts to entice guests,” said Colliers.

Property investment in Indonesia still unattractive, due to high tax rates

Despite the high rental yields, property investment is still relatively unattractive for foreigners, because of complex legalities and high tax rates on non-resident owners.

  • The tax levied on the average annual income on a rental apartment/property in Indonesia is 20% which is the third highest in Asia, only after Bangladesh (25%) and Malaysia (22.4%).
  • A 10% Value-added tax (VAT) is levied on gross rental income.
  • Capital gains realized by individuals from the sale of real property in Indonesia are taxed at a flat rate of 5%. The tax base is the transfer value of the property, without any deductions.
  • Sales of luxury houses, apartments, townhouses, and condominium units with a selling price above IDR 30 billion (US$ 1.91 million) are subject to 20% sales tax.
  • Property tax is levied at 0.5% on the assessed value of the property. The assessment value of taxable property is determined as a percentage of the deemed fair market value of the property.

The total cost of buying and then re-selling a residential property (including registration costs, real estate agent fees, legal fees, sales, and transfer taxes), is one of the highest in the region. However, changes in the law are in process which should make things much easier.

Indonesia’s economy remains strong, inflation eases

Indonesia’s economy was estimated to have expanded by a robust 5% during 2023, following annual growth of 5.3% in 2022 and 3.7% in 2021 and a pandemic-induced contraction of 2.1% in 2020.

The International Monetary Fund (IMF) expects the Indonesian economy to grow by another 5% annually in the next two years while The World Bank’s real GDP growth projection for the country is not significantly different, at an average of 4.9% over 2024-2026.

“Private consumption is anticipated to be the primary driver of growth in 2024. Business investment and public spending are also expected to pick up as a result of reforms and new government projects,” said The World Bank.

Indonesia GDP Growth and Inflation graph

Before the Covid-19 pandemic, the country enjoyed two decades of uninterrupted economic growth. Indonesia’s resilience can be attributed to its very domestically-driven economy. It tends to be insulated from global economic trends. In fact, in recent years, Indonesia has enjoyed robust growth despite the global crisis. From 2000 to 2019, the economy grew by an average of 5.3% per year, based on IMF figures.

In December 2023, overall inflation stood at 2.61%, slightly down from 2.86% from the previous month and far lower than the 5.51% seen in the prior year, according to Bank Indonesia. This is now well within the central bank’s target range of 2% to 4%.

From an average of 9.5% from 2001 to 2008, inflation dropped to an annual average of 4.7% from 2009 to 2019 and further to 2% in 2020 and 1.6% in 2021. But it surged again to 4.2% in 2022.

Unemployment was 5.32% in Q3 2023, down from 5.45% in the previous quarter and 6.49% a year earlier. Over the same period, there were about 7.86 million unemployed people in Indonesia.