Indonesia’s business tycoons are likely to continue pouring money into real estate next year despite high interest rates and a close presidential election, thanks in part to government incentives.
At least two listed companies owned by tycoons – Widjaja family’s Bumi Serpong Damai (BSDE) and Alexander Teja’s Pakwon Jati (PWON) – will spend Rp 4.5 trillion (Rs 290 million) on real estate projects next year. We plan to invest $1,000,000.
BSDE plans to invest up to 3 trillion rupiah ($195 million) next year and PWON 1.5 trillion rupiah.
The Ciputra family’s Ciputra Development (CTRA) is also working on building a 300-hectare housing project in the new capital Nusantara.
PWON broke ground on a hotel project in the new capital in November. The Pakwon Nusantara Superblock will be built on 7.2 hectares of land and will include three hotels, a shopping mall and condominiums. The total investment in this project is expected to reach Rp 5 trillion.
“This groundbreaking of Pakwon Nusantara is an expression of our full support to Capital Nusantara (IKN),” PWON President Director Eiffel Teja said in a statement. “Besides Pakwon Nusantara, new superblock projects in Bekasi, Batam and Semarang are currently underway. In the future, once they become operational, we will expand the existing four superblocks in Jakarta and Surabaya. It’s a schedule.”
Indonesia’s economy grew by 4.94% in the third quarter of this year due to strong household consumption and increased investment. According to the central bank’s latest housing real estate price survey, prices rose 1.96% in the third quarter compared to the same period last year, indicating a robust new housing market.
BSDE is building its flagship project, BSD City, in the western suburbs of Jakarta. The company started this project in his early 1980s and the area of completed development will be his 6,000 hectares. Approximately 2,450 hectares still require development.
“We are optimistic about the business potential in 2024, especially since the government has given VAT incentives until next year,” BSDE director Helmawan Wijaya said in an email.
Wijaya said last year’s value-added tax (VAT) incentives boosted demand for its housing projects. President Joko Widodo reapplied the incentives in October when he announced several measures to boost growth in Southeast Asia’s largest economy. From last month until June next year, the government will abolish the 11% value-added tax on home purchases worth less than 2 billion rupiah ($129,000). The government will then give him a 50% discount on his VAT until the end of 2024.
Maynard Preajaya Arif, head of Indonesia research at DBS, expects real estate sales to slow down next year’s presidential election as both developers and buyers take a wait-and-see attitude.
“For BSDE, we expect a slowdown next year,” Arif said in an email. “However, it will not be dramatic as there will still be positive impacts from land sales and tax incentives.”
High interest rates also reduce the desire to purchase. Bank Indonesia raised the benchmark interest rate from 5.75% to 6% in October and kept it at that level in November.
“The impact of interest rates is up to banks. Currently, banks are still offering competitive interest rates on home loans, so it is up to them to decide whether to raise interest rates soon.”
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