Indonesia Residential Market Report 2024 Q1

Housing Inventory Evolution: Tax Incentive Stimulus and Property Price Adjustments in the Economic Landscape and High Mortgage Interest Rates

East Java Province Leads the Addition of New Home Inventories in Java Island

Surge in Total Inventory of Secondary Housing Driven by Sustainable Development

High Loan Interest Rates Suppress Secondary Home Prices

The inventory of secondary homes across all regions in Java generally experienced a price decrease. In Sidoarjo Regency, Semarang City, and Bekasi Regency, secondary homes in type 36 showed annual price changes of -14%, -3%, and -6% compared to the first quarter of the previous year. This is suspected to be a response to the high bank interest rates and loans in home financing.

< 200 Mn

Total inventory of modest houses showed a growth of 95% in the first quarter of 2024 compared to the same period last year. The growth in this segment was led by DKI Jakarta, followed by Depok Raya, with an inventory increase of more than 100 times.

200-600 Mn

Total inventory of lower-middle houses showed the highest growth within the price segments, with a growth rate of 119% in the first quarter of 2024. The DKI Jakarta region ranked highest in growth, at 32 times compared to the first quarter of the previous year.

600 Mn - 3 Bn

Total inventory of upper-middle houses showed a growth rate of 104%, the second highest growth within the price segment. The most significant growth occurred in Depok Raya and Surabaya regions, at 2 times compared to the first quarter of 2023.

> 3 Bn

The inventory of luxury houses showed the lowest growth percentage within the price segments, at 69% compared to the first quarter of the previous year. The region leading the growth in the luxury homes inventory was Surabaya, recording an increase of 1.7 times.

Dynamics of Home Buying Demand: The Impact of Indonesia’s Presidential Elections, the Urgency of Utilizing VAT Exemption Incentives, and Millennials in Home Buying Demand

Banten and East Java are leading the growth in home buying demand across Java Island and Bali.

• In Banten, the total demand increased by 357%, with a 325% rise for new homes and 375% for secondary homes in the first quarter of 2024 compared to the first quarter of last year. This growth continues as the construction of the Serpong-Balaraja toll road progresses.

• In East Java, the demand for home purchases grew by 283% in the same period. Specifically, in Sidoarjo Regency, during the same period, the overall home buying demand grew by 486%, with secondary homes increasing by 569% and new homes by 255%.

Meanwhile, outside of Java and Bali island, significant increases in home buying demand have also been recorded in East Kalimantan, South Sumatra, South Sulawesi, the Riau Islands, and Riau.

Fun Fact

Presidential elections create an atmosphere of uncertainty that tends to make investors and consumers delay financial decisions. Concerns center around the potential for regulatory changes that could affect ongoing construction projects, which also impacts the residential property market, especially for high-value properties.

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Growth of demand in

luxury houses

38 %

slower

compared to the affordable housing segment

In the first quarter of 2024, interest in luxury houses (home price segment above 3 billion rupiah) grew 38% slower compared to the affordable housing segment (from modest to middle houses). In metropolitan cities like DKI Jakarta, Bandung, and Surabaya, interest in luxury houses grew slower by up to 68% compared to the affordable housing segment.

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Growth of demand in Q1 2024 compared to Q1 2023

Samarinda

+ 22 x

Balikpapan

+ 4 x

In the midst of uncertainties regarding the continuation of the Nusantara Capital City (IKN) development in East Kalimantan during the Presidential elections, interest in the residential property market in IKN's surrounding areas such as Samarinda and Balikpapan remains strong and is growing. The residential property market in these supporting cities has grown earlier due to adequate infrastructure, while IKN has not yet become a new economic center.

Pasar properti residensial di kota-kota penyangga lebih dulu bertumbuh karena infrastruktur yang telah memadai sementara IKN belum menjadi titik perekonomian baru.

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According to the development of the IKN, aside from East Kalimantan, the search for residential properties in Makassar, South Sulawesi, grew by 464% in the first quarter of 2024 compared to the first quarter of 2023. Makassar is expected to support the IKN, particularly as a supplier of food, which enhances the potential for economic growth in the region.

• South Sumatra recorded a demand growth of 453% in the same period, with a 79% increase for new homes and 796% for secondary homes. This growth is closely related to the construction of the Trans Sumatra Toll Road, which will connect from Lampung to Aceh, and is scheduled to be fully operational in 2024. This infrastructure development enhances property values and connectivity around toll access points, thereby triggering a surge in demand in South Sumatra.

• The Riau Islands and Riau recorded a demand growth of 325% in the same period, with a 187% increase for new homes and 369% for secondary homes. This growth is associated with the implementation of 14 National Strategic Projects in 2024, including the development of industrial areas in the Riau Islands, which has spurred housing needs for workers in the region.

Millennial Generation in Home Purchases

In the context of home purchases, home prices and geographic location are key factors in decision-making. Here is a summary of millennial home selection in the first quarter of 2024:

• The highest demand is in the lower to middle price segment (200-600 million rupiahs), accounting for 36% of the total demand by millennials. Type 36 houses are the most preferred by millennials.

• In terms of location, Bogor is the top choice, followed by Tangerang, and then Bekasi, which also attracts the attention of millennials.

The differences in behavior between millennials, Generation X, and Generation Z in home purchases reflect the evolution of preferences and different economic conditions among these three groups. Generation X tends to choose middle to upper-middle-class homes, which are associated with a more stable economic condition and relatively higher incomes. On the other hand, Generation Z tends to choose simple homes priced below 200 million rupiahs. This reflects the early stage of life where they are still building their careers, and homeownership becomes a priority with financial limitations.

BI Interest Rate Stability Triggers Mortgage Demand Surge; Consumers Remain Conservative in Financial Strategies

The decision by the Central Bank of Indonesia (BI) to maintain the benchmark interest rate at 6.00% for the last two quarters has played a crucial role in supporting economic and monetary stability. This condition has aided investors and consumers in making financial decisions in the property sector.

In the first quarter of 2024, there was a recorded increase in mortgage demand on a quarterly basis.

However, lingering global uncertainties have prompted consumers to still adjust their financial strategies. Many have shifted to mortgage takeover (KPR Take Over), which saw higher demand in the first quarter of 2024 compared to the first half of 2023. Additionally, there has been a shift in behavior regarding the choice of installment tenors and fixed interest rate tenors in KPR and KPR Take Over demands in the first quarter of 2024 compared to the same quarter in 2023:

• 18% of the total demand shifted from installment tenors of 16 years or more to shorter tenors, indicating a consumer desire to reduce long-term interest burdens.

• 16% of the total demand shifted to fixed interest rate tenors of three years or more, reflecting a preference for payment stability in times of economy uncertainty.

This dynamic demonstrates a market response that is adaptive to macroeconomic conditions and regulations, as well as a reflection of more conservative financial strategies among home buyers in times of economic uncertainty.

Entering the second quarter of 2024, mortgage demand is expected to show a declining trend in response to the increase in BI benchmark interest rate to 6.25% on April 24, 2024. Although, the BI benchmark interest rate over the past year can still be considered roughly equivalent to the level before the pandemic. Investors and consumers are expected to be more cautious or delay purchasing homes due to the increase in home ownership loan. Based on past experience when the interest rate was raised to 6.00% in October 2023, there was a decrease in KPR demand in the final quarter of that year. Meanwhile, the demand for KPR Take Over products is expected to continue to grow.

Rental Demand Increases Amid High Home Ownership Loan Burdens

High Home Ownership Loan Burdens Drive Rental Demand and Open Opportunities for Passive Income from Property Rentals

The high interest rates on home ownership loans make renting a practical and economical option for housing for those who are not financially ready to buy a home. This condition opens opportunities for homeowners to rent out their properties.

The total inventory of rental homes saw a positive growth of 158% in the first quarter of 2024 compared to the first quarter of 2023. The highest growth in rental home inventory occurred in Bandung City (466%), South Tangerang City (433%), and Bogor Regency (324%)

Rental home demand is expected to increase in the second quarter of 2024. The rise in BI benchmark interest rate to 6.25% at the start of the second quarter of 2024 makes renting an increasingly attractive option for consumers. When the BI benchmark interest rate was set at 6.00% in October 2023, there was an 88% quarterly increase in rental demand in the fourth quarter of 2023.