2023 Global Property Market Struggles and 2024 Outlook
In 2023, the global property market struggled with minimal growth and stagnant prices, reflecting low demand and a sluggish global economy. Real estate prices remained negative, highlighting the sector's ongoing challenges.
The outlook for 2024 remains uncertain, with slow economic growth predicted by organizations like the IMF and World Bank. The IMF forecasted a drop in global economic growth from 3.0% in 2023 to 2.9% in 2024, driven by slowdowns in the US, Europe, and China.
As the global economy slows, the property sector is expected to suffer further. In China, major property company bankruptcies have worsened the situation, impacting the entire economy due to the sector's links to construction, materials, and machinery industries.
Moody's downgraded China's property sector outlook from stable to negative in September 2023, citing economic slowdowns. Recovery is expected to be modest and mainly benefit state-owned enterprises, while private firms continue to struggle with limited funding. Property sales are projected to decline over the next 12 to 18 months.
In response, governments and economic authorities in several countries, including China, have introduced policies to support their property sectors. The Chinese government has implemented financial support measures for developers and homebuyers and efforts to control speculation. In November 2022, the China Securities Regulatory Commission (CSRC) introduced policies to support equity financing for property developers, aiming to stabilize funding conditions after years of limited debt financing options.
Performance of Indonesia's Property Sector in 2023
So far, the poor global property market conditions have not affected Indonesia's property sector. This is partly because Indonesia's property market is not interconnected with the global property market. Indonesia's property market remains relatively "traditional" and does not yet involve global financial instruments like Real Estate Investment Trusts (REITs). The relationship between Indonesian property corporations and offshore companies is also limited, so financial crises in foreign property companies have not impacted Indonesian property corporations.
However, the performance of Indonesia's property sector in 2023 has not been very strong. This is evident from the growth in related economic sectors like construction and real estate. Household consumption for housing and building investment, as seen in the GDP expenditure side, has shown limited growth in the first nine months of 2023. This limited performance is also reflected in the modest price growth of residential and commercial properties.
Despite these limitations, certain property segments have shown impressive growth. This is evident from the increased property credit in specific segments. For instance, credit for small-sized landed houses (up to 21 m²) grew by 48.47% year-on-year in November 2023, supported by subsidized mortgages for low-income households.
Medium and large-sized landed houses also showed relatively high growth with low non-performing loan (NPL) rates, indicating strong demand supported by improved repayment capacity of end-users.
Property Outlook in 2024
In 2023, Indonesia's property market was largely influenced by domestic economic conditions and government policies. Recognizing the sector's significant economic impact, the government and authorities like Bank Indonesia (BI) have focused on sustaining its growth.
For instance, in 2021, the government introduced a fiscal incentive of VAT exemption for first-time home purchases up to IDR 2 billion, ending in September 2022. BI also eased the loan-to-value (LTV) ratio to 100%, a policy still in place.
As of November 2023, the government reintroduced similar fiscal incentives, expanding coverage to first-time home purchases up to IDR 5 billion, with VAT exemptions on the first IDR 2 billion per unit.
This policy is effective until December 2024. Similar past incentives have proven effective, as reflected in the growth of related sectors like construction, real estate, and housing-related household consumption and building investments.
Factors Boosting Property Sector in 2024
Apart from the VAT exemption policy, other factors expected to boost the property sector in 2024 include increased demand from end-users, especially for landed residential projects, and lower mortgage interest rates compared to pre-pandemic levels.
Standard & Poor's (S&P) predicted flat housing sales in 2023 but noted higher sales growth for developers focusing on landed houses and industrial land. S&P projects that government and BI policies will support a 5% to 10% increase in housing sales in 2024, especially for major developers. Medium and small developers are also expected to see growth.
The potential for the property market remains high, with a housing backlog of 9.9 million families and 700,000-800,000 new families needing homes each year. Presidential candidates for 2024-2029 have committed to providing adequate housing, aiming to build 2 million homes annually, doubling the current target. Challenges include affordable land availability and matching cheap funds for housing finance. Additionally, there is a shortage of qualified developers to partner with the government and banks.
Future policies and innovations must be inclusive to address these challenges. Strengthening collaboration between the government, financial institutions, and the property sector is crucial.
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