The Housing Sector in the Age of Mass Consumption

Admin   |    16 November 2018


Indonesia has been steadily growing as a high consumerism society. According to a survey conducted earlier this year by The Conference Board Global Consumer Confidence, in collaboration with Nielsen, a global measurement and data analytics company, the Consumer Confidence Index of Indonesia remains stable with 127 percentage points (pp), the same index as the previous quarter. This Consumer Confidence Index is driven by three indicators, which includes Consumer Perception about Local Job Prospects, Personal Finances and Intention/Readiness to Spend. In Indonesia, those driving factors are relatively stable in the second quarter. According to the survey, 71% of online consumers in Indonesia have a positive Perception towards Future Job Prospects and 63% of Indonesian consumers said that they are Ready/Intend to Spend, which is a slight increase from the previous 62% in Q1 2018. The positive perception of the consumers State of Personal Finances have slightly decreased from 85% in the previous quarter to only 82%, however it is still a pretty high percentage of confidence.

The high buying power of consumers in Indonesia is caused by a rapidly growing middle class.  About seven to 10 million people joined the ranks of the middle class each year for the last 6 years based government data. This expanding GDP per capita has made more and more Indonesians able to purchase property (houses, apartments and condominiums) and in turn has contributed to soaring property prices. It’s also important to note that not only does the country have a vast population that continues to grow wealthier over time, it is also largely made up of young people as about half of the population is below the age of 30 years. This implies that there will be many Indonesians seeking to buy their first property unit for the foreseeable future..

Obviously houses are much more expensive than other consumer yet the growing middle class has prioritised home ownership over other discretionary assets given the expectation of gains in value which other discretionary assets don’t offer. Home ownership is not a “Jakarta only” trend - Bali has seen staggering home price appreciation given it is a destination for both domestic  and International investors.

Bali has witnessed a consistent yearly price increase of between 10-20% especially in areas such as Jimbaran, Ungasan, Kuta, Sanur, Seminyak, and Ubud.. In addition to the obvious interest from tourist, Bali has seen an increase in interest from domestic buyers to have a secondary property in Bali, which has been helped by the relaxation of Bank Indonesia's loan to value (LTV) policy in August. A first time buyer, for fully built houses over 70 square meters, could in theory put a down payment of zero if the lending bank’s risk management system permitted it. We expect this to continue positively impacting the property sector, which in turn could help the banking sector as demand for mortgages should rise along with it.

The Indonesian government in the years since 2014 have consistently  shifted real estate policies towards attracting new investment and increasing property borrowing. This trend was followed by the central bank (BI), who have maintained accommodative growth policies since 2016, although recent interest rate hikes to around 6% could thwart short term momentum. 

In the medium term we believe demand for residential property, both for landed houses as well vertical housing, will spike after the government’s infrastructure projects such as the mass rapid transit (MRT), light rail transit (LRT), TOD (transit-oriented development) in commuter line stations, and new toll roads are completed. Furthermore, the government’s policy to help informal workers access home ownership loans through a special scheme dubbed as “Saving-based Housing Financing Assistance”, is expected to create new demand for housing; especially in the middle-low segment. Currently, the number of workers in the informal sector have reached around 72.67 million or 58.35% in contrast the 50.81 million or 41.65% of formal workers. A similar initiative by state-owned enterprises such as BPJS Ketenagakerjaan and the private sector, most notably Gojek, will further increase demand for housing in years to come.

With this we can conclude that the increasing level of consumerism coupled with a strong growing digital market has contributed greatly to the housing industry in Indonesia. This current situation is also helped by the fact that the Indonesian government is more than eager to accommodate the growing need and push forward the housing sector by providing easy access and opportunities through policies aimed specifically at making it easier for people to own a house and access financing. The combined enthusiasm of both a burgeoning middle class and the government is expected to ensure the continuation of this booming housing industry for many more years to come.

Written By : Fajar Adi Nugroho

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