Real Estate in Indonesia

REAL ESTATE IN INDONESIA

I. Background of Indonesia

Indonesia is an achipelago country. The word of Indonesia means islands of Indian. Indonesia has 17,500 islands which only about 6,000 are inhabited. Total land area is 1,919,440 sq km, whit length around 5,150 km (3200 miles).

There are five main islands;

* Kalimantan : 539,400 sq km

* Sumatra : 473,606 sq km

* Papua : 421,981 sq km

* Sulawesi : 189,216 sq km

* Java : 132,187 sq km

The five main islands are home to 70 percent of the country's population. The rest of populations live in 30 smaller archipelagos. The land area is generally covered by thick tropical rain forests, where fertile soils are continuously replenished by volcanic eruptions. The country is predominantly mountainous with some 400 volcanoes, of which 100 are still active.

According to the latest data, Indonesia's population reached 242,000,000 (estimated 2005 - Wikipedia), which ranked Indonesia as the world's fourth most populous nation after China, India and United States.

Real GDP and income per capita have tended to increase since 2001 or after Indonesian recovered from crisis. Table 1 shows the recent economic indicator of Indonesia from 2000-2004.

Tabel 1. Indonesian Economic Indicators

2000 -2004

INDICATOR 2000 2001 2002 2003 2004

Inflation (%) 9.35 12.5 10.0 5.06 6.40

Average Exchange Rate

(Rp: 1US$) 8,400 10,000 9,260 8,571 9,030

Gross Domestic Product

at Current Prices (US$Billion) 153.7 149 173.9 238.7 255

Gross Domestic Product

at Current Prices (Rp.Trillion) 1,290.7 1,491 1,610 2,045.9 2,303

Economic Growth (Real)

(%) 4.77 3.4 3.7 4.10 5.13

GDP per Capita (US$) 755 720 816 1,131 1,209

Unemployment Rate (%) 6.2 8.1 9.1 9.5 9.9

Exports (US$Million) 62,016.40 56,320.90 57,000 62,527.2 69,713.8

Imports (US$Million) 33,547.20 30,962.10 31,200 33,085.9 46,179.7

Interest Rate (%)

(Certificate Bank of Indonesia) 14.42 17.62 12.93 8.31 7.43

Foreign Reserves (US$Billion) 29.39 28.00 31.57 36.20 36.32

Current Account (US$Million) 7,992 6,480 7,825 8,106 2,878

Sources : The Central Bank of the Republic of Indonesia and Statistics Indonesia

II. The characteristics of the Indonesian housing

Due to archipelago country environment and large number of population in particular islands, Indonesia has specific characteristics in terms of housing matters. Each island has specific characteristics and specific problems. For example, Java Island where the capital city of Indonesia, Jakarta, stands is the most populous and famous island among any other islands. Many people want to live in Java to have better lives and better facilities such as good public schools, good public transportation, malls etc. 60% of economic activities of Indonesia is in Java Island. Population distribution is very uneven. Java Island has the largest population of around 114 million with a density of more than 864 people per square kilometer, while Kalimantan Island for instance has a population around 15 million with area 11 times bigger than Java and a density less than 20 people per square kilometer.

Some characteristics of Indonesian Real estate will be discussed below.

a. Most of Indonesia's people prefer to live in single family home rather than high rise building (i.e. flat & apartment).

Most people in Indonesia want and like to live in single family homes since they like to plant some flowers around their home and to have some space for kids to play around their house (culture reasoning). They don't like to live in high rise building such as flat and apartment, due to the lack of free space for planting and playing.

b. A culture of self-construction and mutual help.

Most of Indonesian people have mutual help tradition. They like to help each other to finish some tasks such as building a house, building a school, construction new roads and so forth. However, this tradition no long exist in urban area but still alive in suburban and village area. Mutual helps usually given by people who live around them such as neighbors, and friends. There is such social pressure is someone do not invole in mutual help. People will do not care about him when he has some difficulties or disasters

In urban area many households build their houses with individual laborers or hire small contractors with self supervision. It is the main way of saving and wealth creation for households. The majority of the houses are built in this way.

In metropolitan area, such as Jakarta city, most of the households directly buy a house from developers. Build a house through self supervision will cost higher than buying them from developers, because developers usually build mass production houses. Most household often customized their mass production houses after buying them from developers since mass production houses usually haven't fixed their taste and needs.

c. House as investment

Many people invest their money in land and house due to high growth rate in price from time to time. For example, when I bought land in 1998 in Bandung city (one of the cities in Java island), and built a little house with 3 bed rooms with total cost around US$ 20,000, the price increased more than three times in 6 years. Before I went to US in 2004, some people wanted to buy my house with the price around US$ 60,000 - 70,000. Land and house are good investment.

III. Type of Housing

There are many type of housing in Indonesia based on cost and space, some of them as below:

a. Low cost housing

Price