Indonesia Property Market
07 October 2013

Indonesia’s residential property price index (14 major cities) rose by 7.4% during the year to end-Q1 2013, the highest year-on-year price increase since Bank Indonesia began publishing data in Q1 2008. However adjusted for inflation property prices increased by just 2.04%.

Yet demand is rising strongly.  In the fourth quarter of 2012, residential property sales in Indonesia soared by 26.7% from the previous quarter. Small houses saw the highest sales growth, about 41% q-o-q in Q4 2012. In December 2012, the total outstanding housing loans in Indonesia rose a stunning 21.74% y-o-y, to reach IDR222.35 trillion (US$22.79 billion).

The reason for strong property demand?   Four years of strong economic growth. Indonesia’s economy grew by 6.2% in 2012, after real GDP growth of 6.5% in 2011, 6.2% in 2010 and 4.6% in 2009.  And Indonesia’s strong economic growth is expected to continue - real GDP growth of about 6.2% to 6.6% is projected in 2013.

Makassar was estimated to have seen the highest annual increase in property prices in Q1 2013, at about 15.6%. About 8 % of Indonesia’s total population lives in this historic port city. Makassar was followed by Palembang area (10.57%) and Denpasar (9.97%).

Poor recent housing market performance.  In recent years, the Indonesian property market has seen very weak real growth (if any) relative to its neighbouring Asian countries.

Over the past five years:

  • Property prices rose by 2.56% (-7.68% inflation-adjusted) in 2008
  • Property prices increased by 2.3% (-0.28% inflation-adjusted) in 2009
  • Property prices rose 2.91% (-3.21% inflation-adjusted) in 2010
  • Property prices rose by 5.05% (0.89% inflation-adjusted) in 2011

The relatively poor price performance of residential property in Indonesia has been something of a puzzle.  There is tremendous pent-up housing demand. Indonesia has the world’s fourth largest population of 245 million people. Despite strong economic growth and high levels of investment, some factors that have hampered the growth of Indonesia’s housing market are:

  • High mortgage interest rates
  • Foreign ownership restrictions
  • High costs of building materials
  • High tax rates
  • Red tape in government

Foreign ownership is difficult in Indonesia.  Land titles (hak milik) can only be held by Indonesian citizens. Foreign land ownership is against the constitution.

For apartments, the 1996 regulation (No. 41/1996) states that foreigners who reside in Indonesia, or visit the country regularly for business purposes, can purchase a home, apartment or condominium as long as it isn't a part of a government-subsidized housing development.

However, foreigners can only hold land-use (hak pakai) deeds, and most developments hold right-to-build deeds (hak guna bagunan). It is not possible for someone to have a land-use deed for a sub-unit of a right-to-build deed. The length of these titles varies as well. Therein lie some of the difficulties and unclear ownership issues.

So foreigners can effectively only lease, and not truly own an apartment for up to 70 years, but not free standing houses. Within this 70-year period, foreigners must also periodically renew their right to use. The initial hak pakai period is for 25 years, then renewed for an additional 25 years and finally 20 years.

Additionally, the threshold or minimum property sales price that a foreigner can purchase is 1.5 billion Indonesian Rupiah, which is around USD168,388.  This minimum "purchase" price is quite high in the Indonesian context.

Source : Global Property Guide