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Indonesia house price growth projected to slow in third quarter

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The Indonesian housing market is expected to remain anaemic as the central bank sees prices growing more slowly again in the current quarter after a slight uptick in the previous three months. AFP

Indonesia house price growth projected to slow in third quarter

Bank Indonesia (BI) estimates that house prices in the Southeast Asian country will grow more slowly in the July-September period after a slight uptick seen in the previous quarter, pointing to continued weakness in the market despite tax incentives.

As BI reported on August 13, the residential property price index (IHPR) posted annual growth of just 1.49 per cent in the April-June period, higher than in the preceding quarter but lower than a year earlier. Growth increased across all house types except for those larger than 70sqm.

However, the central bank expects a further slowdown in the current quarter, with house prices seen to increase just 1.12 per cent year-on-year. In Samarinda, East Kalimantan, house prices are estimated to register a 0.23 per cent year-on-year decline.

“That means sales are very difficult. They lowered [prices], cut margins,” said Wendy Haryanto, executive director of the Jakarta Property Institute (JPI), a non-profit organisation that facilitates dialogue between the government and real estate firms.

House prices have plateaued with growth generally slowing since at least 2018, BI data shows. The pandemic added further pressure and led to a decline in sales by 43.19 per cent year-on-year in the January-March period of 2020.

In the second quarter of this year, house sales contracted again by 10.1 per cent from a year earlier, reversing the 13.95 per cent annual growth seen in the first quarter, which was due partly to a base effect.

“Positive growth in sales of mid-size houses prevented a steeper decline in [overall] house sales,” Erwin Haryono, who heads the communications department at BI, was quoted in a press release as saying on August 13.

Sales of houses measuring 36-70 sqm grew by 3.63 per cent in the April-June period from a year earlier, slower than the double-digit growth seen in the previous quarter. Sales of small houses posted the steepest annual decline at 15.4 per cent.

The majority of surveyed developers in 16 cities told the central bank that rising prices of building materials were the main reason behind the downward trend in sales. Others cited high mortgage interest rates and downpayment requirements.

Mortgage rates averaged 8.44 per cent in June, down from 8.85 per cent a year earlier, according to BI.

The government recently extended value-added tax (VAT) incentives for new houses costing less than five billion rupiah ($350,000) from August to year-end in a bid to revive the housing market.

“For people in the lower-middle [income] group, the VAT [incentive] is not really helpful because it has been difficult for them; from month to month, there is no certainty,” Wendy said.



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