Indonesia’s economy is expected to grow steadily over the next few years. The World Bank projects a 5% increase in 2024 and 5.1% in both 2025 and 2026. These new projections have been revised upward from previous estimates, indicating confidence in the country’s economic policies and potential. This economic stability provides a promising background for real estate investments for current property owners and prospective buyers.
Drivers of Indonesia’s economic growth
The projected growth is largely driven by robust domestic consumption, increased investment, and election-related spending. Household spending significantly contributes to Indonesia’s GDP and has helped Southeast Asia’s largest economy grow by 5.11% in the first quarter of 2024. Despite weak export performance due to global economic conditions, Indonesia’s internal economic activities provide a strong foundation for continued growth.
Government spending and investment increases will impact Indonesia’s real estate market
The World Bank report indicates that public consumption, especially government spending, is projected to increase significantly. This rise in government expenditure is expected to stimulate further economic activity and development projects, which will make Indonesia an appealing location for foreign direct investment (FDI). The percentage of FDI as a share of GDP is forecasted to revert to pre-pandemic levels, indicating a recovery and revitalized investor confidence in the Indonesian market.
For property buyers and investors, the increase in government spending and foreign direct investment (FDI) indicates potential growth in infrastructure projects. This, in turn, can enhance property values and contribute to market stability. Real estate developments are expected to benefit from improved infrastructure and public services, making Indonesian properties more attractive to both local and international buyers.
Economic risks expected due to the new administration’s fiscal strategy
Despite the positive outlook, Indonesia faces several economic risks that could impact the real estate market. High interest rates, geopolitical shocks, and worsening terms of trade pose challenges that could affect the country’s export sector. Investors need to carefully monitor these factors to navigate potential market fluctuations.
President-elect Prabowo Subianto’s incoming administration plans to raise the debt-to-GDP ratio from less than 40% to 50% in order to fund various campaign promises, such as free school meals. The 2025 budget will play a crucial role in defining the new administration’s economic objectives and fiscal policy stance. This fiscal strategy is designed to bolster economic growth but will also require careful management to ensure long-term sustainability.
What this means for real estate investors in Indonesia
Foreign investors who are considering Indonesian real estate can take advantage of the consistent economic growth and rising government expenditures, which offer substantial opportunities. The stable economic conditions and forward-thinking government measures create a favorable environment for long-term investments. Properties in Indonesia have the potential for increased value, particularly in locations that benefit from infrastructure enhancements and improved public services.
Current property owners in Indonesia can expect their investments to remain stable or to appreciate, thanks to the positive economic outlook. Potential buyers should consider entering the market now to take advantage of the expected growth. However, it’s essential to stay informed about the economic risks and the new administration’s policies that could influence market dynamics.
