Amidst the ever-shifting currents of the real estate market, the prospect of property investment is a compelling opportunity and a cautious consideration. The question takes center stage against Indonesia’s diverse and dynamic landscape: Is the present juncture conducive to property investment in Indonesia?
As this Southeast Asian nation weaves a narrative of cultural richness and economic growth, delving into the realm of property investment beckons forth a panorama of prospects and factors warranting comprehensive exploration.
Indonesia property market offers a promising outlook
With the conclusion of the COVID-19 pandemic, Indonesia experienced steady macroeconomic conditions, fueling substantial expansion in the local property market.
This positive trend is mirrored in the Balance of Payments (BOP) data released by the Bank of Indonesia (BI). In Q1 2023, the BOP displayed a surplus of USD 6.5 billion, marking growth from the previous USD 4.7 billion in Q4 2022.
Besides the stable BOP, signs of the domestic property market’s revival are apparent in a banking survey by the Bank of Indonesia (BI). The survey reveals a rise in new credit distribution during Q2 2023.
The new credit distribution’s Net Weighted Balance (NWB) is 94%. BI noted that this growth in further credit distribution occurred in almost all types except for investment credit, which was slightly lower than in the previous quarter.
The support for property market development
The economic growth of around 5% also supports the development of Indonesia’s property market in 2023. Referring to data from the Indonesia Statistics (BPS), Indonesia’s economic growth in the first quarter of 2023 reached 5.03% (year-on-year), an increase compared to the change in the previous quarter of 5.01% (year-on-year).
It is estimated that the economic growth in 2023 will remain strong in the upper range of 4.5-5.3%, driven by improved domestic demand and the positive performance of exports.
In addition to the factors above, the property market in Indonesia holds great potential, as the housing backlog stands at 12.71 million. Therefore, to address this backlog, a program of building 1.5 million houses per year is needed to fulfill the housing demand shortfall by 2045.
3 advantages of investing in Indonesian property
Under Law No. 6/2023 on Job Creation, the Indonesian government has eased property ownership for foreign citizens (WNA) in Indonesia. This regulatory instrument has received positive responses from foreign investors, particularly China.
Currently, many Chinese citizens are considering purchasing residential properties in Indonesia. Several facilitations for foreign citizens have been established after the issuance of the Job Creation Law, among others:
1. Stay permit
Permanent/Temporary Stay Permits (KITAP/KITAS) that were previously mandatory for home ownership. With the enactment of the Job Creation Law, the process of foreign property ownership is now simplified. They only need to provide immigration documents such as visas, passports, or residence permits.
2. Ownership rights
The previous regulations only allowed foreign citizens to own properties categorized as land rights. After the Job Creation Law, ownership rights were extended to apartment units in vertical housing complexes built on the right of building use (HGB).
There are provisions related to pricing. Before the Job Creation Law, prices were higher. However, adjustments have been made to the minimum price list for the single or unit purchase of apartments by foreigners, aligning with their current purchasing power and resulting in lower prices for the majority.
Those facilities have resulted in positive outcomes. From 2017 to 2020, foreign ownership of properties only reached 52 properties. However, after the enactment of the Job Creation Law in 2020-2023, there has been a significant increase of 52%, totaling 79 properties.
Notably, the locations of interest for global investors in Indonesia include Jakarta, Bali, and Batam.
Challenges for property investment in Indonesia
Although the property industry in Indonesia offers promising prospects, developers still encounter several challenges from various aspects.
1. Regulatory instruments
Regulatory obstacles include prolonged building permits (PBG) and provisions for protected paddy fields (LSD) that tend to be burdensome and overlap with housing programs.
The financing structure of properties still needs improvement. About 75% of developers access bank credits with interest rates exceeding 10%, resulting in high costs. Many complaints have arisen from developers concerning financing by banks.
3. Gap of expertise
There is still a gap in expertise between large and small developers, so synergy is still needed.
Aspects to consider before investing in Indonesia property
Property investment is a long-term endeavor with potential profits and risks that can be measured by considering several factors.
Buying property in a strategic location guarantees price appreciation, development of infrastructure and high-value areas, and easy accessibility and proximity to busy centers.
2. Developer profile
Property investment also demands a reputable developer with a proven history. Developers are responsible for the location, construction quality, availability of facilities, pricing, infrastructure, and the project’s overall value.
Therefore, investors should choose trustworthy developers to ensure a smooth investment.
3. Availability of supporting facilities
The availability of facilities around the property can enhance its resale value. Facilities like a clubhouse, for instance, can improve the quality of life and support a particular lifestyle.
Guide to Doing Business in Jakarta
The property market in Indonesia presents a favorable outlook, supported by the country’s post-COVID-19 economic recovery.
To enhance property investment, especially from foreigners, the government has also introduced regulatory measures to ensure the ease of the process of investment in Indonesia property.
Businesses who aim to maximize this momentum to invest in the lucrative property market can get assistance from InCorp Indonesia, which provides services related to land and property ownership and investor KITAS.