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A large population, rising middle class and increased urbanisation make this archipelago an attractive market for real estate investment, not just in the hotel sector.

August 2015

Indonesia is the largest economy in Southeast Asia and one of the biggest emerging market economies in the world. The country is also a member of the G-20 major economies. It still depends on domestic market, and government budget spending with its possession of state-owned enterprises; however, since the 1990s, 80% of the economy has been controlled by private Indonesians and foreign companies.

Indonesia is the fourth most populous nation in the world. It is predicted to have 255 million people from more than 200 ethnic groups by the end of 2015.

While the country’s GDP growth slowed to just over 5% last year, its growing middle class, strong domestic demand, stable political situation, and conservative macroeconomic policy make Indonesia an attractive destination for Foreign Direct Investment (FDI).


Indonesian government officials welcome increased FDI, aiming to create jobs and spur economic growth, and court foreign investors, notably focusing on infrastructure development and export-oriented manufacturing.

“Indonesia is very open to foreign investors.  Although foreign individuals are unable to own properties in Indonesia, locally incorporated foreign-owned companies can,” comments Todd Lauchlan, FRICS, Country Head, JLL – Indonesia. “The business environment here is not as mature as in developed markets, but it is improving all the time with the new President Joko Widodo very keen to attract foreign investment into all aspects of the economy.”

Lauchlan says that a large population, rapidly rising middle class, and ongoing urbanisation are Indonesia’s key attractions to foreign investors.

In spite of these attractions, investing in Indonesia comes with several drawbacks which, broadly speaking, include such factors as weak public infrastructure, shortcomings in education and innovation, legal uncertainty, economic nationalism, and powerful domestic vested interests.


Indonesia provides attractive opportunities for real estate investors across many different sectors, including office, retail, residential, and hotels. However, the residential market, driven by population and income growth, remains on top of the list for investors.

Supported by sustained economic growth, the middle income population in Indonesia has grown to 45 million in 2015 and is expected to swell by another 7 million a year, reaching 80 million by 2020, says JLL. The improved economic conditions post-election, a lack of housing supply over the next two years, and further urbanisation are supporting strong capital gains in this market.

“The apartment market is of particular interest given the relatively limited supply coming on stream alongside a shift from landed housing to high-rise living due to the rising cost of land,” explains Kieran O’Flynn, Associate Director for Capital Markets for JLL in Indonesia.

There are currently some 100,000 apartments in the Indonesian capital, with another 60,000 under construction and already 80% pre-sold. Residential land prices across Jakarta have risen over 300% in the last four years, forcing new buyers into apartments.

“Particular focus is now on high-rise residential in Greater Jakarta due to the forecast future demand for residential housing as the cities continue to increase in population and wealth,” comments Todd Lauchlan. “Rising land values and increased congestion continue to drive demand for apartment living.”

The strong upside for capital values has supported considerable interest from local investors and developers. To mitigate the risks associated with the less transparent nature of the market, foreign developers and investors typically have participated through joint ventures with local developers, or indirectly through the listed developers.

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