Investing in Indonesia
Since coming to power in 2014, President Jokowi’s government has implemented a large investment in airports, roads, ports, railways and other key infrastructure initiatives. What does this mean for Investing in Real Estate in Indonesia? Let’s dive right and take a closer look.
First, one of the main reasons for nation to invest in infrastructure is to provide for or improve the “backbone & blood line” for the economy to operate from. In most all cases, there is a reciprocating cause and effect of infrastructure and the economic output.
Simply put, the greater investment in infrastructure, the greater the means for the exchange of goods and services which results in economic growth and typically higher standards of living ensue. When there is a continued investment in the big works projects, and the standards of living rise, so does the education level, health conditions and you know, all that developed nation stuff.
As a result, there is typically more opportunity across the board when the well-educated citizens see the result of these improvements and as such, have the wits to continue the trend for generations to come.
Let’s look at some exciting facts about The Indonesia of Today and how these facts explain the economic drivers that we will filter thru all facets of the society and ultimately into The World of Investing in Real Estate in Indonesia.
WIKIPEDIA Quick Facts
- Indoensia is a country in Southeast Asia and Oceania between the Indian and Pacific oceans.
- It consists of over seventeen thousand islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Guinea.
- Indonesia is the world’s largest island country and the 14th-largest country by area, at 1,904,569 square kilometres (735,358 square miles).
- With more than 270 million people, Indonesia is the world’s fourth-most populous country and the most populous Muslim-majority country.
- Java, the world’s most populous island, is home to more than half of the country’s population.
A Large and Growing Middle Class
Indonesia has made great progress in reducing its poverty rate recently. The World Bank classifies 20% of the population as middle class. In a country of 260 million people, that’s a huge number! A little over 50 million. Think about that number, it’s roughly half of the population of Vietnam or the Philippines, all of Myanmar or even more than the entire populations of Malaysia, Brunei, Laos and Singapore combined. This is an important statistic for many reasons.
When we look at what constitutes a middle class and the habits of a trending middle class population, we typically associate this with buying power i.e. consumption. Consumption typically leads to more economic growth, and of course along the way, there is plenty of upward mobility into the world of home ownership, which again spells out increased and new opportunities in the Real Estate markets to support the demands of more discerning and capable buyers.
According to McKinsey & Company, an American worldwide management consulting firm, roughly 90 million Indonesians will be part of the consumer class by 2030. The consumer class in Indonesia is defined as “people with an annual net income of $3,600 USD or higher.” In total numbers, this will mean an additional $1 trillion USD in annual buying and spending power by the nation’s consumer class. Again, a huge number.
All these numbers are even more significant when considering more than half of Indonesia’s population is under the age of 30.
This means Indonesia can provide a sustained work force and economic growth for decades
Indonesia is A Nation On The Rise
Indonesia has by far the biggest population and the biggest economy in Southeast Asia. It’s also a regional economic powerhouse with the largest total GDP a rapidly growing GDP per capita that is ahead of most of the other markets in the region.
A focus on infrastructure, manufacturing, and services has helped Indonesia average over 5% annual GDP growth since the turn of the decade. This is among the highest rates in the whole region. Investment in Indonesia has been booming as of course, people naturally see investing in these climates a lucrative endeavor.
Leading economist widely agree China is becoming more expensive while its economy is slowing down. This and a looming trade war with America rightfully see investors looking at alternatives. Indonesia is rich in resources such as labor and manufacturing and vast natural commodities. Multinational companies love setting up shop in dense, heavily-populated countries with these factors in mind.
Indonesia’s location also allows for simple access to large consumer markets locally and regionally. These same entities know that acting now will allow access to a population of more than 260 million people – the fourth biggest in the world
Doing Business in Indonesia
Of course, another factor of seeing the economic growth thru foreign investments hinges on the ease of doing business in the country. Indonesia has followed through significant efforts to make it worthy of jumping 15 places upward from last year in the ranking list by World Bank.
World Bank Country Director Rodrigo Chaves has stated that the strongest positive influence for Indonesia´s upward ranking was a result of the following:
- Acquiring finance
- Paying taxes
- Engaging in cross-border trade
- Establishing contracts
- Easier to establish business
- Access to electricity
- Registering a property
- More business classifications are opening to foreign investments
- Foreigners can now have land in Indonesia
The Amount of Corruption and Bureaucracy is Decreasing
Corruption has caused much trouble in Indonesia in times past. However, this is a something that has seen great improvements from actively dealing with the source issues. The Corruption Eradication Commission (KPK) is strongly enforcing the strict regulations to eradicate corruption and several steps continue to take place to see a better economy for all Indonesians.
According to the Corruption Perceptions Index, Indonesia is one of the few countries showing a steady improvement. Based on Transparency International, the corruption index in Indonesia in 2016 was marked at 3.7, an exceptional improvement.
People Love Indonesia
People who come to this beautiful land fall in love with Indonesia. Indonesia sees this, and a large part of the previously detailed infrastructure works are in support of seeing tourism grow to feed an even larger percentage of the overall GDP. Enter The new 10 Bali’s.
(We are covering this topic in a longer article, The 10 Bali’s of Indonesia. For the sake of this article, we will touch on a few highlights that support the information already provided here within.)
The Ministry of Tourism has listed the destinations earmarked under the 10 New Bali’s plan for further development, which includes the upgrading of airports and construction of new amenities.
“The strategy is to accelerate development,” Deputy Tourism Minister Dadang Rizki Ratman. “In the latest passenger exit survey of 10 million foreign visitors to Indonesia, about 60 per cent of them said they came because of our culture and 35 per cent because they wanted to enjoy our nature,” said Mr Dadang.
President Jokowi has also set a target of welcoming 20 million foreign tourists by 2019. This is a 25 per cent increase in arrivals over last year, when tourism contributed 11 per cent, or 172 trillion rupiah to Indonesia’s gross domestic product.
What does all this mean for Investing in Real Estate In Indonesia?
We know that many people from developed nations are looking for the right land to age in place. Climate, low cost of living, access to amenities such as great food and buying power all fit into retiree’s program. With increased numbers in tourism, we are bound to see even more people looking to take advantage of all these great features suitable for relocation.
The Indonesian retirement visa (Visa Tinggal Terbatas untuk Wisatawan Lansia Mancanegara” Indeks Visa 319) allows you to live in Indonesia, make multiple trips out of Indonesia during the year, open a local bank account, and get a drivers license.
These new expatriated folks will be looking for homes, which in Real Estate 101, when demand increases proportionate to supply, the value rises.
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Location Spotlight
Bali
Bali is Indonesia’s top tourist destination with international arrival numbers beating Phuket, Boracay, and every other place in the region. Bali’s economy is booming and as a result, the streets and public services are kept to high standards. There are countless activates, beaches, mountains, rice fields, shopping, entertainment international hospitals and doctors, an existing International Airport with a new one in the works.
Bali literally has something for everyone. While some parts of the island have seen rapid growth and high prices, there are still many areas close enough “to it all” while still nested quietly in the old ways of Bali off the beaten path. Many great deals are to be found in these areas.
Nusa Penida
Close to Bali is Nusa Penida, an island southeast of Bali visible from the east coast. Nusa Penida has not had the full brunt of tourism of Bali, is still in relatively natural state. Known for its vast outdoor activities, it’s no wonder nature seekers are finally turning in to this island paradise. There are many fantastic opportunities for those looking to get in “at the right time.” Here you can find large parcels, with sea views and tropical breezes for a fraction of the cost of Bali.
Sumbawa
The Island of Sumbawa can be described as a wild, raw and beautiful space. Located between Lombok, Flores and Komodo, where you will find stunning seascapes to open grazing lands and high mountainous peaks. Sumbawa is about as far away from city life as you can imagine. While there is access to some of the modern amenities a city folk may have grown accustomed to, nature is the real draw. If you are looking for old Indonesia with plenty space, solitude, surfing and diving, Sumbawa may be just for you.
The prices in this region are very low compared to more developed areas of Indonesia. There are several developments going on now that will ensure an even greater access to the comforts of life. But for now, it’s a place of solitude and relaxation at its finest.
FINAL THOUGHTS
With all these things in mind, Indonesia is looking like Investing in Real Estate in Indonesia had many great benefits. Nothing is certain in Real Estate or Investing. As in all cases, multiple professionals across the board should be consulted to ensure all factors are considered. We cannot say if Investing in Real Estate in Indonesia is for you, but we do hope this information is useful.
