Construction and real estate in Indonesia experience online growth

Online property portals were among the first e-businesses to benefit from widespread popular appeal in Indonesia, and new sites and apps serving the Indonesian market have proliferated over the last decade. Recent entrants have sought to move beyond the traditional classified-listing model, with larger property sites increasingly diversifying service offerings to include real estate news, online forums and economic reports, while recent entrants have adopted innovations including location-based browsing and Google integration.

The growth potential for online property portals is significant, with several foreign tech companies moving to acquire operations in Indonesia in recent years, while others have successfully concluded rounds of fundraising to expand operations in its relatively untapped market. Further diversification of online offerings – including the recent launch of a new property index, which is expected to improve price transparency – should see digital platforms play an important role in the country’s real estate sales and development.

ONLINE PROPERTY PORTALS: Dozens of new online property portals have cropped up in Indonesia since 2007. According to national media, these sites were one of the earliest internet business models to take off in Indonesia. Notable online portals include PropertyKita, one of the largest of its kind in the country, which launched in 2009 and had more than 240,000 listings as of 2014. The site earns revenues from advertisements and does not charge transaction commissions, with users able to search for local agents by area or name.

Regional property portal Lamudi, a subsidiary of Germany’s Rocket Internet, launched in 2014 with approximately 2700 listings. Lamudi now operates in over 20 countries, including the Philippines and Pakistan, and reports 5m monthly visitors to its global network. In Indonesia, it also produces quarterly real estate reports.

Acquired by Singapore’s PropertyGuru in 2011, Rumah is another major player in online property portals, increasing the number of paying real estate agents listed on its site to 6400 by the end of 2013, with active property listings reaching 220,000 in 2014. Rumah has moved to diversify its online offering in recent years, providing discussion forums and property news, and launching a mobile app. It reported that there are currently 3.4m visitors accessing 17m Rumah pages in Indonesia each month, amounting to 400,000 listings.

Rumah123 was one of the earliest entrants to the property portal market, launching in 2007. It was acquired by Malaysia’s iProperty in 2011, and provides discussion forums and property news on its site, as well as a dedicated app, while Romahku was launched in February 2011, offering unique features like unlimited photos for each listing, unlimited property agent listings and sales reports that calculate agent commissions.

More recently, apartment-only property portal Rukamen launched in mid-2015, employing innovative features including a location-based search engine and integration with Google Street View.

PORTAL INVESTMENT: Although markets such as Singapore have become increasingly saturated with online property portals, Indonesia’s massive population and rapid internet adoption has created attractive opportunities for tech investors, as evidenced by a recent round of fundraising for Singapore-based start-up 99.co. In April 2017 the company announced it had raised $7.9m, which will be used to expand its property listings in Indonesia, as well as new research and development (R&D) activities. The funds were raised in a round led by Eduardo Saverin, co-founder of Facebook, as well as Sequoia Capital India Advisors Private, both of which are 99.co investors. East Ventures and 500 Startups, also investors, participated in the round too.

According to Darius Cheng, CEO of 99.co, some 20% of the new capital will be used to accelerate tech and R&D, with the remaining 80% being allocated to the funding of growth strategies in eight Indonesian cities. The company currently offers services for Jakarta and Surabaya, both of which launched in January 2017.

Moreover, 99.co reports that its user base rose by more than 150% in 2016 to reach 2.5m, while transaction volumes had risen by an average of 188% month-on-month in the 12 months to April 2017, and stood at $90bn on an annual run-rate basis.

GROWTH POTENTIAL: Many online property portals earn their revenues by charging for individual listings, while others, such as Property Kita, earn revenues from advertising and offer free listings. Both of these models hold considerable potential for future expansion.

The Ministry of Finance’s Directorate General for Taxation estimates the total value of the country’s digital advertising industry at $830m, with Google and Facebook accounting for 70%. Singapore state investment firm Temasek meanwhile reported that Indonesia’s digital advertising market was worth $300m in 2015.

With foreign tech companies now eyeing expansion beyond Jakarta and Surabaya, the relatively untapped Indonesian market could also be the key to future growth for many regional players.

However, limited tech infrastructure and a larger population of low-income earners have also posed a challenge, with 99.co reporting that the country’s fragmented market, under-developed tech infrastructure and a preference for less-powerful mobile devices with lower bandwidth and smaller screens had been difficult as developers moved to launch services.

THE TAX QUESTION: The government could also move to regulate disruptive tech firms active in the country, having already made similar moves in the online ride-hailing market (see Transport chapter). The Indonesian government is keen to improve tax revenue realisation, and it has increasingly shifted its focus to large multinational tech companies. In June 2017 international media reported that Facebook had decided to establish a larger local unit following claims that it was underpaying taxes. As of July 2017 Facebook had 126m users in Indonesia, making the country Facebook’s fourth-largest market after India, the US and Brazil.

In the same month government officials announced that Google’s Asia-Pacific headquarters had agreed to make tax payments in the country, after criticism that its local unit, Google Indonesia, was acting only as a sales service provider. This increases the likelihood that other foreign tech firms profiting from Indonesia’s digital advertising industry will be expected to pay taxes.

PROPERTY INDEX MOVEMENTS: Until recently, information regarding fair prices for various property categories in Indonesia remained limited due to the lack of a detailed and instantly accessible property index that permits price comparisons.

Bank Indonesia, the central bank, tracks house prices via the Residential Property Price Index (RPPI), which has tracked prices on a quarterly basis since launching at a baseline level of 100 in 2002. The RPPI shows a steady upwards trend in house prices in Indonesia, with the index rising from 145 in the first quarter of 2012 to 160 in the first quarter of 2013. The RPPI rose from 194.54 in the fourth quarter of 2016 to 199.26 in the second quarter of 2017, and is likely to surpass 200 for the first time before 2018, with residential prices forecast to continue rising throughout the year.

The RPPI for small houses had already surpassed 200 by the end of 2015, and rose from 219.8 in the fourth quarter of 2016 to 229.69 in the second quarter of 2017, and was projected to continue trending upwards.

The RPPI for medium houses went from 192.68 in the fourth quarter of 2016 to 196.22 in the second quarter of 2017, while the RPPI for large houses rose from 169.82 in the fourth quarter of 2016 to 171.45 in the second quarter of 2017.

FIRST ONLINE INDEX: With property prices on the upswing but detailed information on purchase prices remaining limited, online property sites are expected to play a role in improving access to Indonesian real estate data, and Rumah recently moved to diversify its services, with the goal of offering potential buyers a better picture of fair market valuations.

In March 2017 Rumah launched Indonesia’s first online property index, in an important move to push property market transparency. According to Rumah officials, the index gives property buyers a valid reference point for prices, reducing unfair pricing and, potentially, real estate inflation. The index analyses property data on both the national and local levels, releasing information on a quarterly basis.

With affordability remaining the single most important consideration for potential home buyers in Indonesia according to a first-quarter 2017 report by real estate consultancy Savills Indonesia, access to information regarding residential valuations is expected to be an important catalyst for mortgage market growth.