Indonesia’s Property and Construction Sector Leads the Way for the IHSG
In the first five months of 2013, Indonesia’s main stock index (IHSG) rose 16.62 percent to a near record high level at 5,068.63 points on Friday (31/05/13). Initially, both analysts and investors were concerned that Indonesia would experience its traditional ‘May Cycle’, the term which refers to the usual fall of Indonesia’s index in the month of May. However, reality proved different as the index recorded a small gain of 7.71 points (0.15 percent) last month.
Property & construction and consumer stocks still form the main pillars of support for Indonesia's index. The property sector in particular posted spectacular growth this year. During the first four months of 2013, Indonesia’s property sector grew 73.11 percent. And according to analysts, the end is not in sight yet as domestic demand for property remains robust and Indonesian property developers are expected to post net profits that rise by around 30 percent in 2013. As such, the property sector can grow up to 90 percent towards the end of 2013. Moreover, if projects within the government’s ambitious Masterplan for Acceleration and Expansion of Indonesia's Economic Development (abbreviated MP3EI) will be initiated, then the property sector’s growth can in fact be revised upward.
Due to the recent exceptional growth in Indonesia's property market, there have been concerns about the emergence and burst of a property bubble. Most analysts, however, believe that this is not the case for Indonesia in the foreseeable future. In the past two or three years, property prices have indeed grown steeply, but they come from a low base. Prices are now reaching levels as were seen before the Asian Financial Crisis of 1998. Moreover, most newly built property is sold. For example, about 95 percent of this year's newly built apartments in Jakarta have been sold, mostly to end-users, despite a new policy of Indonesia's Central Bank (introduced in June 2012) that aims to curb Indonesians demand for property. This new policy stipulates a new (and higher) minimum down payment of 30 percent for residential property that is larger than 70 square meters. However, it did not cause a significant fall in sales.
Another - and perhaps more real - concern with regard to Indonesia's property sector is the possible hike in the price of subsidized fuel. The government intends to raise this price in June 2013 to relieve the budget deficit. This step will subsequently result in higher inflationary pressures and is most likely to be followed by a higher central bank interest rate (BI Rate), making it more expensive for Indonesians to buy a mortgage.
The table below indicates the rise or fall of various Indonesian sectors in 2013. Overall, these sectoral indices show good performances. The only exceptions to this general trend are the country’s miscellaneous industry, agriculture and mining.
| Sector | Year to Date Growth |
Number of Companies |
| Property | 73.11% | 52 |
| Consumer Goods | 36.67% | 36 |
| Trade | 25.19% | 105 |
| Manufacturing | 18.26% | 136 |
| Finance | 17.49% | 73 |
| Basic Industry and Chemicals | 15.26% | 60 |
| Infrastructure | 11.15% | 44 |
| Miscellaneous Industry | -4.01% | 40 |
| Agriculture | -4.23% | 19 |
| Mining | -17.66% | 36 |
| IHSG | 16.62% | 465 |
Source: Investor Daily