Boarding House Fever in Malang: Smart Investment or Property Bubble?

Malang has experienced rapid growth in the property business in recent years, particularly in the exclusive boarding house sector, popularly known as ruko-kost (rukost). This phenomenon is evident from the proliferation of rukost construction in areas around campuses such as Lowokwaru, Soekarno-Hatta, Dinoyo, Tlogomas, Tunggulwulung, and Karangploso. The presence of various developers offering the concept of ‘passive investment with monthly income’ has made the rukost business a favourite investment instrument for the middle class and investors from outside the region.

This phenomenon is inseparable from Malang’s character as an education city. Malang currently has around 62 active higher education institutions with tens of thousands of new students each year. Universitas Brawijaya alone accepts approximately 15,000 new students annually, while the total number of incoming students to Malang is estimated to reach over 220,000 people per year. This condition creates a huge demand for temporary housing. In addition to students, the growth of young workers, lecturers, healthcare professionals, and service sector employees also increases the need for rental housing. It is therefore unsurprising that demand for exclusive boarding houses with complete facilities such as air conditioning, Wi-Fi, CCTV, smart locks, and 24-hour security continues to rise.

If one has the opportunity to travel around Malang, one will be presented with the interesting fact that there is a great deal of new rukost construction in various corners of the city. Several large developers are actively expanding their wings in this business. Beyond these major developers, there are dozens of small-scale developers and individual investors building rukost independently in campus areas. This trend shows that the boarding house property market in Malang has evolved from an individual business into an organised property industry.

The proliferation of the rukost business is driven by the various economic benefits offered by developers to potential investors. These include stable passive income, as occupancy rates in campus areas are relatively high due to the annual influx of new students. Some developers claim a return on investment (ROI) of 8 to 20 percent per year, depending on location and facilities. For illustration, a rukost unit priced at IDR 1.5 billion with 10 rooms rented at IDR 1.8 million per month and a 90 percent occupancy rate could generate an annual income of IDR 194.4 million. Assuming 20 percent operational costs, the investor could obtain a net profit of around IDR 155 million per year. Another advantage is the increase in asset value, with land prices in strategic areas of Malang rising by 7 to 12 percent annually, and some areas seeing increases of up to 15 percent over the last three years. Furthermore, property investment serves as a hedge against inflation, as real assets can protect wealth value.

However, this sweet business also carries potential risks for buyers. The first risk is oversupply, where the rapid construction of rukost could lead to an excess of rooms compared to the growth in student numbers, causing occupancy rates and income to fall. This is particularly dangerous if the purchase was financed by a loan. Secondly, competition is becoming increasingly fierce, with consumers demanding premium facilities such as high-speed internet, co-working spaces, laundry, digital security, and cleaning services. Owners who fail to innovate risk losing tenants. Thirdly, high operational costs for building maintenance, facility repairs, taxes, shared electricity, internet, security, and staff salaries can significantly reduce profit margins. Fourthly, there is a credit risk, as many investors purchase rukost using mortgage facilities. If occupancy rates fall while instalments remain constant, investors could face cash flow difficulties, potentially increasing non-performing loans for banks. Finally, there is the risk of a property bubble, where a rapid increase in property prices can trigger market speculation. If prices are no longer supported by real demand, property values could undergo a correction.

The urgency of this discussion is that the proliferation of the rukost business in Malang is a logical consequence of the growing number of people seeking education in the city, which should ideally boost the local economy. However, without wise spatial planning, Malang risks losing its identity as a comfortable, cool, green, and humanist city, as it becomes more pressured by economic functions rather than social and environmental ones.