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Challenges amid recovery for Indonesian property sector in 2023
The Indonesian property sector is forecast to face great challenges in 2023 with lower growth.
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A housing complex build by the Public Works and Housing Ministry. (Courtesy of PUPR/-)
W
e forecast that the property sector will grow slightly more slowly in 2023. Total home and apartment ownership loans will grow by 7 percent in 2023, lower than the 7.3 percent in 2022. The property sector in 2023 will face several challenges amid the recovery process.
The property sector will face some risk factors in 2023. The first risk factor is a global economic recession, which will affect the domestic economy. It could lead to a decrease in consumer confidence, which in turn causes people to put off buying property.
This situation was also demonstrated by Bank Indonesia’s (BI) consumer survey in October, which showed the proportion of respondents who had a plan to allocate excess income in the next 12 months for investment in property declined from 13.49 percent in September to 12.65 percent in October. Moreover, the proportion of respondents who planned to buy or build a house in the next 12 months also decreased.
Besides the global economic recession, rising inflation is also a challenge to the property sector in 2023, especially with increasing prices of building materials, which will lead to an increase in property prices, thus making people put off buying property.
Historical data show that the increase in building material prices has not been fully transmitted by developers to house prices. BI's residential property price survey showed that house price growth in the third quarter of 2022 was 1.94 percent year-on-year (yoy), lower than the wholesale price index for residential and non-residential buildings in September 2022 of 5.51 percent yoy. We believe this will reduce developer margins.
Other impacts of rising inflation are reduced people's purchasing power and decreased consumer confidence, which cause consumers to postpone property purchases.
Another risk factor in the property sector in 2023 is an increase in interest rates, which could also cause people to put off buying property. We believe that interest rate hikes will continue until the first half of 2023 but rates are expected to stabilize or decrease in the second half.
