Construction

Increased government investment in infrastructure has helped unleash a boom in Indonesia’s construction sector. With rapidly growing demand for residential real estate, office buildings, industrial estates and other property across the archipelago, the construction sector is poised to see significant expansion. And, although the sector has declined since 2012, a new law that allows foreign nationals to purchase condominiums is likely to help drive up foreign direct investment for future construction projects. One of the main challenges for the sector in 2013 was the rupiah’s depreciation against the US dollar, which significantly increased the cost of building materials. The prices for asphalt and concrete, for instance, rose 21% and 20%, respectively. Dams, roads, and bridges account for the majority of government projects that are currently under way or planned to begin construction in the next few years. Toll roads and bridges will be the first investment areas as the government seeks to improve the nation’s transport links. Human capital development and a boost in industry standards are key for the sector to increase its overall GDP contribution. Though the sector may slow in the first part of 2014, it is expected to gain momentum once the new administration is given time to establish new regulations. If it favours infrastructure development with similar attention as the current administration, the sector will continue to benefit from increased government spending.