Arief Rahardjo, director of research and strategic consulting at real estate services firm Cushman & Wakefield, said that economic recovery and government policies remained the key factors influencing the property sector in 2022.

The sector's performance improved last year, compared with 2020, as the government introduced a VAT tax cut on new homes, and rolled out the national vaccination drive.

“We hope that the pandemic [will be] under control and [the government] will provide additional incentives to ease consumers’ burden,” Arief said on Wednesday. “The right time to buy properties is before VAT increases and while the VAT waiver is still in effect.”

Read also: Govt extends VAT cut on new homes but reduces amount

The newly passed Harmonized Tax Law will raise the standard VAT rate from 10 to 11 percent starting in April and 12 percent in 2025 in a bid to boost state revenue and attain fiscal consolidation.

Meanwhile, Bank Indonesia (BI) has said it will raise its benchmark interest rate around year-end to prevent capital outflows as the United States Federal Reserve also plans rate hikes in late 2022. The benchmark rate currently sits at the lowest level ever at 3.5 percent.

“The government’s VAT increase to 11 percent will increase property prices in the future,” Ferry Salanto, research head at property consultancy Colliers, said in a media briefing on Jan. 5.

However, the government has also extended by six months a period of reduced VAT on the purchase of new homes to the end of June 2022, which is expected to spur demand, even though the discount was also halved.

Coordinating Economic Minister Airlangga Hartarto announced the extension last month wherein a 50 percent VAT cut would apply to properties priced at less than Rp 2 billion (US$140,242), while a 25 percent tax cut would be applicable for homes priced between Rp 2 billion and Rp 5 billion.

The earlier regulation had waived VAT on houses and dual-purpose properties, namely shop-houses and office-houses, priced below Rp 2 billion, while it slashed by half VAT on homes priced between Rp 2 billion and Rp 5 billion.

“Last year, developers used these opportunities to sell their stocks and buyers can buy houses at a relatively lower cost,” said Yunus Karim, head of research at services and investment management firm Jones Lang LaSalle Indonesia, of the VAT cut and low interest rates.

Despite the extension, developers also saw that the number of houses eligible for the tax incentive, especially those in large estates, was running low, Cushman & Wakefield’s Arief said.

He said the VAT rate hike was also a concern for developers as it would affect the sales of houses not eligible for the tax incentive.

“If the interest rate rises significantly, it will affect consumer spending and consumer interest, the majority of whom are still end-users who depend on mortgages,” Arief added.

Similarly, Wendy Haryanto, executive director of the Jakarta Property Institute, suggested that the government make an exception for the property sector regarding the planned increase in VAT rates and interest rates.

“The property market slumped for two years because of the pandemic. Bouncing it back will require massive [policy assistance],” she said on Tuesday.

Residential property sales and prices saw a downward trend amid the COVID-19 pandemic in 2020, which severely limited people’s purchasing power and developers’ marketing efforts, despite lower mortgage interest rates.

Read also: Residential property sales, prices rise cool as pandemic hits economy

Lower office occupancy rate

The office occupancy rate is projected to be relatively low this year due to supply and demand imbalances, Colliers’ Ferry said.

“There are indications that the property [market] will improve in 2022, but we still can't expect much due to several challenges including a large gap between supply and demand in the market,” he added.

In 2022, seven office buildings in the central business district (CBD) in Jakarta are expected to be completed, adding roughly 350,000 square meters of new supply. Outside the CBD, seven office buildings are projected to be completed adding approximately 200,000 sq. m, Colliers data show.

Furthermore, Colliers reported that the CBD office occupancy rate reached 78.4 percent in the fourth quarter last year, declining 5 percent from the pre-pandemic level in 2019. Outside the CBD, the occupancy rate reached 79.2 percent, down 3 percent compared with the pre-pandemic level.

“The high volume of new supply in 2022 [is expected to] trigger a [further] decline in the occupancy rate,” Ferry concluded.

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