October 25, 2023
JAKARTA – The government has announced plans to boost the property market by covering the value-added tax (VAT) and the Rp 4 million (US$252) administration fee for low-income home buyers.
“Today, we held a meeting to decide what [was the right way] to spur on the economy. We will provide incentives [for the property sector], but we haven’t finalized it yet,” President Joko “Jokowi” Widodo said on Tuesday at the BNI Investor Daily Summit 2023.
Jokowi stated that tax revenue in October was up 5.6 percent from last year’s baseline. The increase indicated that local businesses were also growing, according to the President.
However, Jokowi noted that despite the achievement, Indonesia was still facing challenges such as El Niño, which was affecting rice harvests around the world. Thus, many countries had curbed rice exports to secure domestic needs, which might also cause a rice shortage in Indonesia.
On top of that, the war between Ukraine and Russia was ongoing and the global situation was worsened by the conflict between Israel and Hamas in Palestine, which threatened to widen to involve Lebanon and Syria, Jokowi cautioned. Should that happen, it would increase oil prices and complicate economic conditions in many countries.
“The last time I checked, the oil price was still $89, but if it reaches $150, this is something we need to beware of from a monetary and fiscal point of view,” Jokowi said.
Coordinating Economic Minister Airlangga Hartarto specified later at the same event that the VAT waiver would apply until mid-2024 to purchases of properties costing less than Rp 2 billion. A 50 percent VAT reduction would apply after June 2024.
Declining property sector
Earlier this month, Colliers head of capital markets Steve Atherton said the property market in Indonesia was currently dependent, in large part, on local investment, given the ongoing global economic uncertainty.
“We see some of the larger land acquisitions and new start-up construction for various types of projects, mostly undertaken by Indonesian developers and investors,” he said.
However, the property consultancy noted that some sectors of the property segment, such as office space, would not see a recovery until 2026 because of high interest rates and oversupply, leading to a “very soft” absorption. A similar slowdown was expected in the apartments segment.
For now, strong demand for landed housing in Indonesia had managed to counterbalance that limited take-up, according to Atherton.
The property sector in Indonesia has been hit as Bank Indonesia (BI) has gradually increased its benchmark interest rate since August last year. On Thursday, the central bank increased rates again by 25 basis points (bps) on the back of global uncertainties, despite the fact that inflation in the country has been on a declining trend for most of the year.
BI Governor Perry Warjiyo explained that the hike in borrowing costs was a preemptive, forward-looking measure to control long-term inflation and protect the rupiah exchange.