Indonesia’s real estate sector is changing, enticing foreign investors to its potential opportunities. With a flourishing construction sector and a soaring urban population, Indonesia is becoming a global center for real estate investments. This Southeast Asian country is aiming to outperform economic powers like Germany, Japan, and the UK, reaching the fourth position globally by the middle of this century. With steady GDP growth exceeding 5% every year, Indonesia’s economic outlook is much better than the global average.
Indonesia’s real estate sector is booming, thanks to its growing urban population. A combination of high birth rates and fast urbanization is generating an amazing 780,000 new households every year until 2045. This demographic change has increased the demand for housing, pushing property prices higher.
The demand for real estate is also boosted by rising incomes, encouraging families to move from poor-quality accommodations to newly built, better residences. However, the supply side of the equation is nearing its capacity, with several leading developers facing overleveraging issues, looming maturities, and restricted opportunities for expansion. This supply-demand gap makes the Indonesian property market more attractive, offering significant price appreciation.
Indonesia’s real estate market offers a tempting opportunity for investors, with residential prices much lower than those in neighboring countries. Based on Numbeo data, the average cost per square meter in an Indonesian city center is just over $1,600, a fraction of what one might find in similar nations.
However, it is important to realize that property prices in Indonesia are relatively low for a major reason. Only one out of five Indonesian families can afford a home in the commercial market, leaving more than 6 million people, or over 2% of the population, homeless.
Over the years, the Indonesian government has been careful in letting wealthy foreign investors join the real estate market. Foreigners can only own leasehold properties for 80 to 100 years without mortgage financing, not freehold ones. The minimum purchase price for foreigners varies from $65,000 for an apartment in Northern Sumatra to $325,000 for a villa in Jakarta or Bali, according to a leading online property platform Housearch.com. These measures have helped keep housing affordable for local people but have also affected the profitability of the construction sector.
Indonesia started to remove some of the obstacles for foreign property buyers in 2021, such as the long-term residence permit requirement and the ownership laws. However, the reform has not been very effective, as only around 200 foreigners have bought property in Indonesia without using a local proxy, and only 40 in 2023. The reform has been hampered by slow implementation, complicated registration procedures, and local authorities asking for resident IDs.
Acknowledging the pivotal role that the construction sector plays in boosting GDP growth, Indonesia finds itself increasingly motivated to expand foreign investor access to its housing market, with a specific emphasis on the premium segment. There is widespread speculation that the government may eventually authorize full freehold ownership for foreign individuals in specially designated free-zone-style regions, with a view to simplifying the registration procedures.
The government has rolled out a range of visa initiatives aimed at enticing immigrants. Among these programs is the ‘second home’ visa, which permits individuals to reside for a maximum of 10 years provided they maintain a stable income and savings exceeding $130,000. Additionally, the government has recently introduced the ‘golden visa’ program tailored for millionaires. Furthermore, officials are actively exploring the prospect of introducing a ‘digital nomad’ visa catering to young professionals engaged in remote work.
Indonesia’s real estate market remains an enticing draw for foreign investors, despite the limitation to leasehold properties. As reported by Housearch.com, highly sought-after regions like Bali and Jakarta offer substantial average rental yields, occasionally reaching an impressive 15%. This means that investors can recoup their initial investments in less than eight years, ensuring a profitable return on investment, even in the absence of substantial property price growth during the lease period.
Indonesia’s real estate sector is presently undergoing a remarkable transformation, further solidifying its status as an increasingly attractive destination for foreign investors. With a rapidly growing urban population and a government committed to expanding foreign ownership opportunities, Indonesia’s property market continues to present captivating prospects for those in pursuit of investment opportunities in this dynamic and ever-evolving industry.
