Indonesia Expat
Business/Property Featured Observations

Investing in Property in Indonesia: A Good Idea?

Property Indonesia
Investing in Property in Indonesia: A Good Idea?

The past few years have seen uncertain times like very rarely if ever experienced before, with the world at large still trying to get back on its collective feet socially and economically following the double-whammy of the COVID-19 pandemic and the Russia-Ukraine conflict.

Whole countries and communities are living in a state of flux as we wait to see what number the dice will land on when it finally stops rolling before we make any life-affirming or changing decisions. While all of us have been affected by the events of the past few years to some degree, some have suffered more than others. 

Economically, we have seen prices rise dramatically over the past few years, unemployment increase, salaries frozen or even cut, savings eroded, and belts metaphorically tightened like never before in living memory.

Now, as the first shards of global economic recovery threaten to break through the clouds once again, thoughts can finally start to turn to personal matters and how to take steps to protect ourselves financially once more. In previous editions, we have looked at the minefield of the financial world, but another sector traditionally seen as providing a “good investment” is the world of property.

Growing up in “the West“, a predominant school of thought was the one promoting the idea of getting on the property ladder at a young age and then, if possible, building up a property portfolio. In contrast to the sometimes somewhat baffling world of high finance, the property markets offer something real and tangible to witness and possess, but like the paper issue of stocks and shares, investment in the property market involves risks as well as potential benefits.

Indonesia has seen its fair share of property development in recent years with the sprawling metropolis of Jakarta in particular expanding at an alarming rate. This raises several questions and moot points: Why should this expansion be so and is it a good thing, for starters? Also, is investment in property both affordable and a safe bet?

Let’s look at these issues one by one. The creation of new homes over the past thirty years or so has happened at an alarming rate and intensity, and previously unspoiled views of miles and miles of open fields have been obliterated as they have been turned into housing estates and compounds aimed at various price and affluence markets.

While some may bemoan this state of affairs, others think that the increase in housing is both a necessity and a sign of progress. The population of Indonesia has risen by 30 percent in the last 30 years from slightly under 200 million to the current total of approximately 280 million. The reasons for this increase have been largely due to improved infrastructure and healthcare resulting in a dramatic increase in the average life expectancy from 63.31 in 1993 to the current 72.32.

With people living longer, the need for housing increases. This provides both industries and individuals with financial and economic opportunities. More houses required means more work for construction and related industries, which means more employment, which means more money is ploughed back into the economy. 

This, theoretically at least, is a good thing.

Now, many people – myself included – may feel the erosion of the countryside is a pity, but what are the alternatives? Jakarta as a city is already hopelessly overcrowded and although significant improvements have been made in its infrastructures, especially its transportation systems and highways, there is just no real space within the existing metropolis to house the ever-increasing population.

The increase in housing has also, naturally, led to an increase in the construction of supporting buildings and services such as malls, hotels, shopping strips and associated businesses. This has – again – been good for the economy but perhaps less so for the environment.

The price of residential properties varies greatly in Indonesia (as indeed it does in most countries) but generally speaking, the country is considered to be at the low end of the Asian properties market. The dependables include location, size and age of property and one is naturally strongly advised to take the time and effort to research carefully before making any sort of binding commitment.

The island of Java is the most populous island of Indonesia’s sprawling archipelago and so is most in demand for property, but prices will vary greatly from province to province. This applies equally to the cost of purchase, rental and land per square metre.

The most popular areas include Jakarta (as mentioned above) where residential property can sell for an average of around Rp18.3 million per square metre ($1,250) and rent is relatively high but there is also a high average gross rental yield. Jakarta is an attractive place for investors looking to buy property and then rent it out due to the expansion of the city. With the impending change in  Indonesia’s capital city from Jakarta to Nusantara, this state of affairs might also change in the future.

Other places in demand include Bali, Balikpapan and Lombok.

Bali is, of course, known for its tourism and so attracts those looking to invest in such businesses as well as those looking to retire to a supposed life of idyllic bliss, while Lombok offers a cheaper and rather less hectic but similar alternative.

Balikpapan, on the other hand, has the dual attraction of both tourism and business opportunities, especially with its proximity to Nusantara.

With the price of land in Balikpapan currently retailing at a more modest Rp8.9 million per square metre ($595), investing in property in this region may well be attractive in the present climate.

Property can usually be bought via mortgage arrangements in Indonesia as in other countries, with repayment plans ranging from anywhere between five and twenty years. Depending on the amount and the details agreed upon, mortgages can be at fixed or adjustable rates of interest also.

There is still a significant number of people who prefer to rent rather than buy and so this of course opens up a market for those looking to buy to generate an income through renting. The buyer will look to recoup the cost of his or her mortgage through the rental fee while benefiting from obtaining the full value of the property once the mortgage has been paid off.

This is an example of “speculating to accumulate” and is common amongst those who can afford to do so. Of course, there are risks involved, as the property may remain empty and not rented, and personal circumstances may also change meaning the owner could find themselves in a position of being unable to meet the repayment commitments.

In addition, any expatriate looking to purchase land or property in Indonesia does need to display caution as well as do their homework. It is legally possible for non-Indonesians to join the Indonesian property market but there are still a myriad of rules and regulations that one must be aware of and understand before attempting to do so.

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