BI Rate and Developers Facing Increased Pressure

The ongoing conflict in the Middle East and Bank Indonesia’s decision to raise the BI Rate to 5.25 per cent on Wednesday (20 May 2026) is expected to exert additional pressure on the property sector, particularly in terms of construction costs.

Bambang Ekajaya, Vice Chair of the Real Estate Indonesia Association (REI), noted that the unabating war in the Middle East could trigger sharp increases in construction costs. “If the Middle East conflict is not resolved, construction costs will rise sharply. When combined with rising mortgage interest rates, prospective buyers will certainly hold back,” Bambang stated on Sunday (24 May 2026).

According to him, this situation presents increasingly complex challenges for the property industry. Property prices are likely to rise due to increased construction costs, but the public’s purchasing power for housing has not fully recovered. Bambang assessed that developers cannot simply raise selling prices amid weak consumer purchasing power.

The BI Rate increase is expected to drive higher commercial lending rates, including non-subsidised mortgage rates. This situation is likely to increase the financial burden on the public, both for prospective homebuyers and those still servicing mortgages.

“The current situation is indeed difficult on all fronts. The BI Rate increase will certainly drive up commercial interest rates, including non-subsidised mortgage rates. The impact will undoubtedly be burdensome for both prospective buyers and those making mortgage payments,” Bambang said.

However, Bambang predicted that the impact of the BI Rate increase on the property market will not be immediately felt in the near term. He stated that the policy’s effect will likely only be felt within two to three months, whilst the property market currently remains in challenging conditions.

“The effects will only become apparent in two to three months. Meanwhile, the property market remains difficult,” he said.

According to him, the most realistic approach currently is to continue marketing ongoing projects while monitoring market developments. “For now, the best approach is certainly to wait and see while continuing to market existing projects,” he concluded.