Caring for the Property Industry (2)

In the aftermath of the Covid-19 pandemic, the Ministry of Finance conducted a study on incentives that could be given to the public while stimulating the economy. A team then made an analysis, and chose one of the sectors that would have the most impact on economic growth if stimulated with the right incentives. Namely, the housing sector because it has a large multiplier effect.

"At that time, we were looking for ways to cushion the impact of the economic downturn and maintain growth at around 5%," said Immanuel Bekti, Policy Analyst at the Ministry of Finance's Fiscal Policy Agency (BKF), now the Directorate General of Economic and Fiscal Strategy (DJSEF), during a discussion in the middle of last year.

Now, the same incentives are being applied in times of global economic uncertainty. The housing sector received an incentive called Government Borne Value Added Tax (VAT). The Ministry of Finance concluded at that time, the imposition of this incentive by bearing VAT up to 100% could at least contribute 0.1 percent of Gross Domestic Product (GDP).

Minister of Housing and Settlement Areas (PKP) Maruarar Sirait (second right) accompanied by his wife Shinta Triastuti (right), President Director of Perumnas Tambok Setyawati (fifth left) and Head of BP Tapera Heru Pudyo Nugroho (second left) inspect a house construction site during a working visit to Perumnas land in Jakarta, Saturday (5/7/2025). The Minister's review at the site was to evaluate the ongoing housing development program so that it runs effectively, transparently, and on target. ANTARA FOTO/Ferlian Septa Wahyusa

According to Director General of the Directorate General of Economic and Fiscal Strategy (DJSEF) Febrio Kacaribu, the VAT DTP policy not only increases people's purchasing power to buy houses, but also encourages the growth of the construction sector.

Referring to data from the Central Statistics Agency (BPS), the performance of the construction sector recorded growth above 7% throughout 2024, with growth of 7.59% in the first quarter and 7.29% in the second quarter(year on year).

Encourage housing absorption with VAT DTP

Previously, this government-borne tax-free incentive had been running for two periods. The first period, VAT DTP of 100 percent was applied from January to June 2024, then for July-December 2024 it was given 50 percent. VAT DTP for ready-to-live houses was announced in November 2023, and stipulated in the Minister of Finance Regulation on February 12, 2024.

The government provides tax incentives for the purchase of primary houses with a maximum price of IDR5 billion, with the amount of VAT covered for houses priced up to IDR2 billion.

During January-June 2024, the 100 percent VAT DTP incentive is considered to have boosted housing absorption by an average of Rp160 billion-Rp170 billion per month. However, when the amount of VAT DTP was reduced to 50 percent in July-August 2024, the absorption of commercial houses slowed down. The realization of commercial housing absorption fell 33% to an average of IDR 100 billion per month.

However, when the amount of VAT DTP was reduced to 50 percent in July-August 2024, the absorption of commercial houses slowed down.

The VAT DTP incentive is mostly absorbed for commercial houses with prices of less than Rp1 billion per unit, which contributes around 70%. The extension of the VAT DTP incentive by 100 percent is believed to be able to boost the housing market again, especially at prices below Rp1 billion.

Previously, VAT incentives for landed houses and apartment units were rolled out by the government in 2021-2022. The government issued Minister of Finance Regulation (PMK) Number 103/PMK.010/2021 which provides 100 percent VAT DTP for houses with prices up to IDR 2 billion, and 50 percent VAT DTP for prices above IDR 2 billion to IDR 5 billion.

Property sector should be prioritized

Chairman of the Central Leadership Council of Real Estate Indonesia (REI) Joko Suranto emphasized that the property sector as one of the backbones of economic growth needs to be prioritized, because every property investment of Rp112 trillion can contribute 0.56% to national economic growth.

"This sector also has linkages with almost 185 other industries in the real sector, so it has a big impact on the movement of the economy," he said.

Minister of Housing and Settlement Areas (PKP) Maruarar Sirait (left), Minister of Home Affairs Tito Karnavian (right), and Head of the Central Bureau of Statistics (BPS) Amalia Adininggar Widyasanti (center) give a press statement after attending a collaborative meeting to update and dashboard DTSEN in the FLPP and Self-Help Housing Stimulant Assistance (BSPS) programs for three million houses at the BPS Office, Jakarta, Wednesday (30/7/2025). The meeting was to follow up on preparations by the Ministry of PKP and BPS to conduct an objective assessment to build and renovate three million houses. ANTARA FOTO/Fauzan

Not only that, Joko said, the housing sector has also made a major contribution to the national economy. Among other things, the contribution to the national gross domestic product (GDP) is 14%, contributes to the state revenue and expenditure budget (APBN) by 9%, regional original income (PAD) between 35%-55%, and is able to absorb a workforce of 14 million-17 million people.

"This sector also plays a role in reducing poverty by 8%, as well as reducing stunting , as envisioned by President Prabowo Subianto," he said.

Joko added that the housing sector could provide up to 9 million jobs. In addition, it can grow at least 400,000 new industry players throughout Indonesia.

The increasing public demand for housing has made the housing sector the main engine driving the economy. In the development of the economy in Indonesia, the housing sector occupies an important position. This sector is a strategic sector like other sectors, namely agriculture, industry, trade and services.

The growth of the housing sector has a great opportunity to accelerate economic recovery. This is because the housing sector has the ability to encourage other sectors to be more developed(backward and forward linkage).

One of the factors that make the housing sector able to support economic growth is because the housing sector is a capital-intensive and labor-intensive industry, and 90% of housing development resources also come from within the country.

The housing sector, which focuses on housing construction, is one of the sectors that can absorb a lot of labor. Around 50,000 workers will be absorbed for every 100,000 houses built.

The most common mortgage schemes

With these various policies, the impact on the economy is still not significant. As shown by the results of the Survey of Residential Property Prices (SHPR), Bank Indonesia (BI) which shows that residential property prices in the primary market in the first quarter of 2025 fell.

This is reflected in the Residential Property Price Index (IHPR) in the first quarter of 2025 which grew by 1.07% (yoy) or lower than the growth in the fourth quarter of 2024 of 1.39% (yoy).

The Residential Property Price Index (IHPR) in the first quarter of 2025 grew by 1.07% (yoy)

"The development of property prices was influenced by the increasing sales of residential property in the primary market in the first quarter of 2025, especially small-type houses, amid a decline in sales of medium and large type houses," said BI Communication Department, Ramdan Denny Prakoso.

In the first quarter of 2025, sales of small houses surged 21.75% yoy. However, sales of medium and large houses fell by 35.76% yoy and 11.69% yoy, respectively. Overall, residential property sales recorded a growth of 0.73 percent (yoy), an improvement from the previous quarter which recorded a contraction of 15.09 percent (yoy).

In terms of financing, the survey shows that the main source of funding for residential property development still comes from developers' internal funds, with a share of 77.28%.

"From the consumer side, most home purchases in the primary market are made through the Home Ownership Credit (KPR) financing scheme, with a share of 70.68% of total financing," he said.

Mukhlison