Indonesia's economic slowdown spells the end of a property market boom that had seen demand and prices rise sharply for several years running. While demand for residential real estate is buoyed by urbanization, slower growth in household spending is taking its toll on the commercial segment.
At a crucial time for the Indonesian economy with hopes on attracting investment in order to nudge the property sector into a rebound, facilitating foreign property ownership could provide a very welcome boost.
Changes to the law on foreign ownership of property have been long awaited by investors as Indonesia’s property prices remain some of the lowest in the region. This section features information on what shape the upcoming changes will have and the opportunities to be found within it.
In what would be an unprecedented move by a country that has long grappled with the question of its sovereignty in relation to land ownership, the Indonesian government appears set to allow foreigners to buy property. A proposed revision to current laws should enable expatriates to own luxury apartments.
Indonesia’s housing sector is still unable to keep pace with the growing population and demand. Without a significant breakthrough, many fear that Indonesian millenials will not be able to afford to buy in urban centres.
The impending inauguration of Joko Widodo has speculation abound in anticipation of policy shifts to be enacted by the new government. Having suffered from a ‘wait and see’ approach to long-term investments, the property sector in particular has been a topic of discussion and looks set to benefit from renewed consumer and business confidence.
In line with urbanisation and changing lifestyles, the shift away from the traditional model of elderly care being provided within the family home is bringing about opportunities within nursing homes among other more unconventional real estate opportunities.
Slowing GDP growth, rising interest rates and central bank measures to prevent excessive speculation call for a reassessment of residential property investment prospects. While most of these factors point to a less bullish market in the near future, the longer-term prospects remain intact.
Bank Indonesia is set to increase the Loan-to-Value (LTV) limitation for home mortgage loans, thereby reducing the obligatory minimum down payment for primary home buyers. This move is in response to a slowdown in property sales across the board.
Contribution to GDP: 2.79% (Q3 2015)
Mortgage to GDP Ratio: 3.5% (2015)
Housing Backlog: 13.5 million (estimated)
Average Condominium Price: 46,322,208 IDR/sqm (CBD, Jakarta, Q3 2015)
Average Retail Space Rental Price: 829,652 IDR/sqm/month (CBD, Jakarta, Q3 2015), 542,221 IDR/sqm/month (Jakarta, Q3 2015)
Average Office Space Rental Price: 342,581 IDR/sqm/month (CBD, Jakarta, Q3 2015)
Average Industrial Land Price : $220.2 USD/sqm (Bekasi, Q3 2015), $140.6 USD/sqm (Tangerang, Q3 2015)
Relevant Law: Government Regulation No. 41 of 1996 on Housing or Residential Ownership for Foreign Citizens Based in Indonesia allows foreigners to own leaseholds of up to 70 years subject to renewals at 25, 20 and 25 year intervals.