Why Property Prices will Never Decrease

Property prices which rise every year have become a common thing for Indonesians to face, even reports of increases in property prices per three months are not surprising even though Indonesia is currently facing an economic recession.

The Increase of Property Prices
Minute Read

3 mins

Published

01.02.2021

Property prices which rise every year have become a common thing for Indonesians to face, even reports of increases in property prices per three months are not surprising even though Indonesia is currently facing an economic recession. The property sector continues to be the most lucrative form of investment, though loan interest rates are very low, there is still a potential for an increase in property prices by 10 to 15 percent per year.

If the state’s economy is unable to withstand the increase in property prices, then which factors affect them to continue to rise every year?

 

The Increase of Property Prices

Red up arrow and stacks of gold coins in front of wooden house. Investment and time concept

 

1. Limited Land Availability

The need for housing continues to increase every year, but unfortunately, the land area of Indonesia does not expand along with the increasing demand. Following the law of supply and demand, this situation causes property prices to increase annually.

One solution to the limited availability of land is to provide vertical houses such as apartments and flats. However, on the other hand, the availability of landed houses will decrease and the price will still follow the increase in property prices.

2. Increase in Population

This factor is related to demand from the law of supply and demand. Indonesia has a population birth rate of approximately 4 million people per year, by 2030 it is estimated that Indonesia’s population will reach 300 million!

This high population growth rate is a factor in the increase of property prices and availability, especially for cities where population density is higher. Controlling the rate of population growth and transmigration can be a solution to make supply and demand more balanced.

3. Inflation

When the country’s economy is weakening and the value of the currency is decreasing, people’s purchasing power will decrease and the prices of goods will increase. Every year, inflation is bound to occur, although the percentages may vary. Inflation affects various sectors of the economy, such as interest rates, accelerated credit loans, and others.

To avoid a significant increase in property prices due to inflation, we must be careful in choosing a property. We can choose properties with an undemanding payment scheme or provide profitable offers.

4. Increase in Property Material Prices

In addition to having a direct impact on interest rates, credit and investment, inflation will also cause developers to increase property prices due to rising prices for building materials, construction costs, and other costs. The accumulated increase in the price of basic building materials is also a factor in the increase of property prices each year.

5. Middle-class population growth

As a developing country, Indonesia’s middle class will continue to grow. Included as a middle-class society are people with good education and stable income. Therefore, middle-class families will have two family members with stable income.

The middle class is the most promising prospect for the property market. Apart from having good credit, the middle class usually has sufficient knowledge in finding attractive interest rates and property offers.

6. An Increase in Industry & Employment

Properties are divided into two types, residential properties and commercial properties (business centres). If industrial activity in an area increases, the need for commercial property will also increase. This will increase the number of workers who live in the area that leads to higher residential property prices.

 

The Increase of Property Prices

Miniature colorful house on stack coins using as property and financial concept

 

Many Indonesians have not been able to buy a house because of the increase in property prices each year which is around 15-35%. This price increase made people with barely sufficient income hesitant to buy their own house.

However, different things apply to investors who have reserves of funds. When the economy is tough, they buy up properties with falling prices and sell them at higher prices when the economy improves.

The benefits obtained from this business sector can increase many times, from an increase in land prices or capital gains and an increase in annual usage or rental prices. That is the importance of researching property prospects each year if you are intending on buying a land or building for personal or investment purposes.