Business Trips & Tourism in Indonesia Boost Hotel Development

Most of the projects will be developed in West Java, Indonesia’s most populous province, and the island of Bali, the most popular tourist destination in Indonesia. Meanwhile, domestic property developers are aggressively developing mixed-used development projects (which combines residential, commercial and hospitality use) in Makassar (Sulawesi), Balikpapan (Kalimantan) and Medan (Sumatra). For 2015, such projects are also planned in Semarang, Malang, Lombok, Kupang, Ambon and Sorong. Due to increased competition in the domestic hotel sector, the construction of such mixed-use projects is considered a safer option (although requires significantly more capital). Meanwhile, research conducted by Intiland Development shows that the market for budget hotels rises rapidly.

Hotel Construction Development in Indonesia:

	2012	2013	2014	2015
Construction Value (in IDR trillion)	14.6	24.6	24.5	38.6
Growth YoY	77%	68%	-0.24%	57%

^{Source: BCI Asia}

Growth of foreign tourist arrivals in Indonesia has risen rapidly in recent years. In 2007, the world’s largest archipelago was visited by a total of 5.5 million foreign tourists. This figure is expected to have risen to 9.5 million tourists in 2014. However, despite strong growth, Indonesia still lags behind its regional peers in terms of foreign tourist arrivals. For example, Malaysia and Singapore welcomed 18 million and 20 million foreign tourists, respectively, in 2013. Considering that Indonesia contains abundant attractions for tourists - including beautiful beaches and mountains, diverse cultures, and historic sites - there is still ample room for growth in tourist numbers. To optimize tourist flows, Indonesia will enhance promotion and marketing abroad. Moreover, Indonesia is expected to scrap visa requirements for foreign visitors from Australia, China, Japan, South Korea and Russia (starting from January 2015) in an attempt to boost the number of foreign tourists. Although this move implies that Indonesia misses out on USD $11.3 million per year (as currently USD $35 is charged per ‘visa on arrival’), it is expected to result in an additional 450,000 foreign tourists per year. Considering that each tourist spends an average USD $1,200 during his/her holiday in Indonesia, the country will thus gain around USD $540 million in additional foreign exchange per year.  

Foreign Tourist Arrivals in Indonesia:

Month	Tourist Arrivals          2013	Tourist Arrivals          2014
January	614,328	753,079
February	678,415	702,666
March	725,316	765,607
April	646,117	726,332
May	700,708	752,363
June	789,594	851,475
July	717,784	777,210
August	771,009	826,821
September	770,878	791,296
October	719,900
November	807,422
December	766,966
Total	8,802,129	6,946,846

	2007	2008	2009	2010	2011	2012	2013	2014¹
Foreign Tourists (in millions)	5.51	6.23	6.32	7.00	7.65	8.04	8.80	9.50

^{¹ indicates government target
Source: Statistics Indonesia (BPS)}

Indonesia has been experiencing solid economic growth for over a decade. Although, recently this growth has slowed amid international economic turmoil and internal fiscal rebalancing, analysts are confident that GDP growth in Southeast Asia’s largest economy will bounce back to the level of +6 percent y/y in 2016 and may touch +7 percent y/y by 2019 provided that the Joko Widodo-led government will continue to implement structural reforms. In line with economic growth, domestic and foreign direct investments in Indonesia have risen as well (to record high levels in the third quarter of 2014), implying that demand for office space and other facilities (such as conference centers and hotels) rises continuously. In Q3-2014, total investment in Indonesia reached IDR 119.9 trillion (USD $9.9 billion). Mahendra Siregar, Chairman of the Indonesia Investment Coordinating Board (BKPM), expects that foreign direct investment (FDI) will grow 15 percent y/y in 2014, and 18 percent y/y in 2015. However, these figures are much lower than the 22 percent growth pace recorded in 2013.

Foreign and Domestic Investment in Indonesia:

	2014
	Q1	Q2	Q3	Q4
Domestic Direct Investment	34.6	38.2	41.6
Foreign Direct Investment	72.0	78.0	78.3
Total Investment	106.6	116.2	119.9

 

	2011				2012				2013
	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Domestic Direct Investment	14.1	18.9	19.0	24.0	19.7	20.8	25.2	27.5	27.5	33.1	33.5	34.1
Foreign Direct Investment	39.5	43.1	46.5	46.2	51.5	56.1	56.6	65.5	65.5	66.7	67.0	71.2
Total Investment	53.6	62.0	65.5	70.2	71.2	76.9	81.8	83.3	93.0	99.8	100.5	105.3

^{in IDR trillion
Source: Indonesia Investment Coordinating Board (BKPM)}

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