As one of the fastest-growing economies in Southeast Asia, Indonesia has been experiencing significant growth in its real estate and property sector. In fact, it’s been reported that real estate and property contribute to 14.63% of Indonesia’s GDP. This is a major indicator of the country’s consumer and investor confidence, as well as its ability to attract foreign investment. In this article, we will delve into the factors that are contributing to the growth of Indonesia’s property market, and explore the challenges and opportunities that lie ahead for the sector.
The property, real estate, and building construction sectors are significant contributors to the Indonesian economy, accounting for 14.63 percent of the national gross domestic product (GDP) in 2022, according to a recent study by the research institute LPEM of the University of Indonesia’s Economic and Business Faculty. The study shows that the three combined sectors generated around Rp 2,865 trillion ($191.9 million) in the GDP last year, representing a reduction from 16.3 percent of the national GDP, roughly Rp 2,516 trillion, in 2020, a result of the COVID-19 pandemic.
Between 2018 and 2022, the study shows that the said sectors, coupled with their multiplier effects, spurred an estimated Rp 185 trillion a year in tax revenue for the central government, contributing on average about 9.26 percent to the state budget. Property, real estate, and housing sectors are also a boon for the sub-national governments across the archipelago, with locally generated income from the taxes in these industries totaling Rp 464.7 trillion during 2018-2022, equivalent to about Rp 92.9 trillion a year or approximately 31.86 percent of the locally generated revenue.
In 2022, the three sectors have created job opportunities for 13.8 million people, or around 9.61 percent of Indonesia’s national workforce. As of last year, 9.54 percent of the Indonesian population lived below the poverty line; without these sectors, the poverty rate could have skyrocketed to 17.37 percent, the study revealed.
LPEM researcher Uka Wikarya explained that the forecast for this year’s GDP contribution would depend on the growth of both the economy and the property industry. “If the property [sector] grows at a faster rate than the national economy, the industry’s contribution [to the national GDP] would top 14.63 percent. But to do so, we would need to penetrate a larger market, so that end-users can purchase houses at a more affordable price,” Wikarya said. However, this would require incentives, including subsidies for reducing production costs to provide more affordable housing.
Budiarsa Sastrawinata, the head of the integrated property department at the Indonesian Chamber of Commerce and Industry (Kadin), expressed optimism about the sector’s growth for 2023, stating that the housing industry intersects with 183 other sectors. If the [housing] sector moves, all other sectors in the country would follow, he added. In particular, Budiarsa highlighted that, for the lower middle class, 100 percent of the products within the industry are locally produced, and none of them are imported.
