West Java Property Industry Declines by Up to 40% Amid Global Economic Pressures
The global economic downturn has severely impacted the property business in Indonesia, particularly in West Java, evidenced by a drop in property sales of up to 40%. Chairman of the West Java Regional Leadership Council of Real Estat Indonesia (REI), Norman Nurdjaman, explained that despite the decline, the remaining 60 to 70% market share still represents significant potential for developers. “To win this competition, DPD REI West Java is focusing on strengthening the internal competencies of its members, one of which is through Digital Marketing Training activities. We must compete by equipping REI West Java’s marketing staff and content creators with insights and technical skills related to social media optimisation,” he stated in Bandung on Tuesday.
According to Norman, the sales decline of up to 30% was triggered by weakening public purchasing power due to the global situation. The surge in the US dollar exchange rate has impacted the rising prices of imported substitute raw materials and direct imported materials, such as door handle components. On the other hand, the supply of local natural materials has also been disrupted since the implementation of a moratorium on class C mining in West Java. “This policy has resulted in soaring prices of building materials in the field. REI developers located on the border of West Java and Central Java are forced to buy materials from Central Java or other areas where supply is still available. As a result, prices rise and trigger inflation,” he explained.
Norman noted that the industry is currently trapped in a state of stagflation, where inflation and deflation occur simultaneously. This condition is highly avoided because its impact directly hits various economic sectors in a chain reaction. “Amidst this difficult macro situation, the potential housing market (backlog) in West Java is actually still very high. Nationally, the government’s backlog figure reaches 10 million units, while other calculations reach 15 million units,” he said. According to Norman, from the government’s figures, West Java accounts for at least 20%, or around 2 million units. This backlog figure of 2 million units is a very potential market for developers. However, the economic situation forces commercial housing developers to raise selling prices.
Regarding subsidised housing, its price is held back by government policy. There has been no increase in the price of subsidised houses for the last three years. With the rising dollar exchange rate and soaring natural material costs, Norman stressed that it is now very relevant for the government to immediately raise the base price of subsidised housing. In addition to production factors, developers are currently facing two main obstacles from the consumer side and land regulations. Consumers are finding it increasingly difficult to apply for Home Ownership Credit (KPR) due to poor records in the OJK’s Financial Information Service System (SLIK), triggered by online loan and paylater debts. Although the government once provided leeway that SLIK records under IDR 1 million could be annulled, banks remain selective. “Banks are very strict in assessing the risk character of prospective debtors before approving credit,” he said.
Norman added that another issue faced by REI members is regulatory uncertainty regarding land, specifically related to LSD, LP2B, and LBS. Developers often suffer losses after investing capital to purchase land. REI members will not dare to buy land that from the outset is designated as Green Open Space. “Developers always check land use designations with Bappeda or the Spatial Planning Agency. However, the obstacle is that sometimes when purchased, the status is a yellow zone (buildable), but over time, the designation changes to a green zone. This is a regulatory issue that needs serious attention from various related parties,” he continued. For this reason, DPD REI West Java will discuss these defences in a series of Regional Working Meeting activities through a discussion themed ‘Answering Land Regulation Challenges in the Property Business’, scheduled for Wednesday.