Indonesia is set to become a new economic powerhouse in Southeast Asia, luring more investors from overseas.
Increasingly more foreign buyers, especially from China, have spotted investment opportunities in Indonesia’s real estate market. I believe that Indonesia will become increasingly interesting once we see more regulatory changes to foreign ownership of property.
Having said that, you must understand how healthy the market is before making any investments. In this article, we explain how Indonesia’s property market has performed the past years and what my predictions are for 2019.
Indonesia’s Property Market in Previous Years
Indonesia’s property market has slowed down in the past years after experiencing a sharp growth in 2012. The Federal Reserve Bank of St. Louis has an illustrative graph showing the price changes.
As shown, the average price increase has slipped from 14% in 2013, down to around 3% in 2017 and 2018. In 2019, the average price increase was even lower and around 2.5% in the second quarter.
There are four main reasons for this decline:
Political uncertainty
Lower occupancy rates
Introduction of a new luxury property tax
A drop in GDP per capita between 2012 and 2015
The GDP per capita was USD 3,680 in 2012 and decreased to USD 3,330 by 2015. The slowing economy was a main contributor, which resulted in a reduced purchasing power among the middle- and upper-middle class.
The GDP per capita started to increase again after 2015 and was around USD 3,487 in 2017.
Indonesia’s Property Market in 2018 and 2019
According to a report by DBS Bank published in the first half of 2018, we saw a significant year-on-year increase in the presale market (37%) compared to the first half of 2017.
To summarize, the report for the first half of 2018 presented the following interesting results:
The demand in 2018 improved across all residential segments
We saw a slight improvement in rental yields, as well as price increases
According to Colliers, the average rental increase for apartments in Jakarta in 2018 was 3% to 4%
The average asking price for apartments increased by 2.5% in the first half of 2018, compared to the first half of 2017, which is comparably low to other emerging markets.
The market remained weak in 2019 and property prices fell by 1.63 in the fourteen biggest cities during the first and second quarters, according to GlobalPropertyGuide.com.
Having said that, many analysts are positive for the coming years as Joko Widodo was re-elected as president, which many believe will have a positive impact on Indonesia’s real estate market.