Indonesia residential market to see solid demand in 2024 despite delay to interest rate cuts: analysts, ASEAN Business

[JAKARTA] The housing market in Indonesia is expected to remain strong for the rest of this year despite persistently high interest rates.

Market watchers believe that the country’s landed residential properties will continue to sell well, mostly due to generous government incentives and increasing demand from the rising middle-income group.

“We still see high demand for new landed houses in suburban areas, and we expect this demand to remain in double digits this year,” said Nixon Napitupulu, the president-director of state-owned mortgage lender Bank Tabungan Negara (BTN), at a recent seminar in Jakarta.

BTN, which holds a 40 per cent market share of Indonesia’s mortgage lending, saw a 12 per cent growth in loans last year. This was largely attributed to buyers of homes in the 200 million rupiah (S$17,217) to 550 million rupiah price range.

Nixon said the fact that Indonesia had a presidential election this month will not have a significant impact on whether people decide to purchase a home or not.

He also pointed out that optimism remains high in the property market. The central bank said earlier this week that it would likely have some room to cut borrowing costs in the second half of the year, despite the market predictions of an earlier easing.

Indonesia’s economy grew by 5.05 per cent in 2023, fueled by strong household consumption. The government has set a target for a 5.2 per cent expansion this year.

Bank Indonesia’s (BI) latest residential property survey, which measures prices, rose by 1.96 per cent year on year in the third quarter last year, indicating strength in the new-housing market.

The survey projected that banking loans growth would reach 10.8 per cent this year, with consumer loans and mortgages picking up steam in the second quarter.

Analysts from property consultancy JLL said that Indonesia’s landed housing sector is expected to retain its resilience as more pepole take advantage of value-added tax (VAT) incentives that were rolled out last year.

The government announced last year that it will waive the 11 per cent VAT on home purchases priced up to 2 billion rupiah until June 2024.

From July until the end of December this year, the discount on the VAT will be 50 per cent for houses below 2 billion rupiah.

Analysts say the property market in Indonesia, especially in Jakarta and Bandung, is getting more interest after the launch last October of the high-speed rail linking the two cities.

Developers such as Bumi Serpong Damai (BSDE) said the VAT incentives and the better connectivity in the Greater Jakarta area have delivered a much needed boost to the sector.

BSDE is currently building its flagship residential project, BSD City, on the outskirts of Jakarta with some 2,450 hectares still needing to be developed.

“We are optimistic about the business potential in 2024, especially with the 100 per cent VAT incentive that’s in place until the first half of 2024,” said BSDE director Hermawan Wijaya.

The company has set a target of 9.5 trillion rupiah in sales for this year, with the residential segment expected to contribute just over half (53 per cent) of the total.

Property prices in Indonesia have gone up sharply over the last 10 to 15 years after the global financial crisis, sparking concerns over affordability.

The government is considering extending the maximum home mortgage tenor to 35 years to provide more affordable monthly payments for lower-income households. Currently, the maximum legal mortgage tenor is 30 years.

This plan was proposed by the Public Works and Housing Ministry in December, and a pilot project will be rolled out later this year.

Not everyone is convinced this will work, however. Esther Astuti, an analyst at the Institute For Development of Economics and Finance, said this policy will not help much to solve Indonesia’s housing issues because extending the tenor also means there will be greater risks from a longer borrowing period.

She said the average Indonesian homebuyer has about a 20-year timeframe to repay a mortgage. Most people typically take a home loan between the ages of 30 and 35, and the current retirement age is 58.