The future of the Indonesian construction industry
Published on 20/05/2015
Indonesia's construction industry is in a position of strength. In fact, construction services firm AECOM says Indonesia is expected to enjoy the fastest construction market growth of any Asian country over the medium term, while Jakarta looks set to be the number one city in Asia when it comes to market expansion.
In its new Construction in Indonesia - Key Trends and Opportunities to 2019 report, Timetric says the industry's output value will climb from a compound annual growth rate of 6.62 per cent between 2010 and 2014 to 7.87 per cent from 2015-19.
But where is this growth going to stem from? What are the most attractive areas for investment, both now and in the future? This guide examines some of the projects already in the pipeline and looks at sectors that are poised to drive the construction industry in Indonesia forward over the coming years.
Large-scale residential projects
With Indonesia tipped to have the second most profitable construction market in Asia in the medium term, there is little surprise that a significant number of major construction projects are already underway in both the commercial and residential arenas.
One of the most important projects, led by property developer Lippo Karawaci, is Millennium Village: The Global Smart City. Located on a 70-hectare area in Lippo Village, part of Tangerang district in Banten province, the development is said to be worth more than $15 billion. According to Lippo Karawaci, the smart city will be on par with places that offer the best standard of living in the world.
The first phase of the project involves the construction of two apartment towers, Hillcrest House and Fairview House, which are expected to be finished by mid-2018 - thus helping to support growth in the residential building market over the same period.
Ivan Budiono, chief executive of Lippo Homes, told the Jakarta Globe that demand for properties in the new village has been high. "Units at Hillcrest House have already been sold out since the grand preview last year."
Significant scope for growth in retail construction
But the residential sector is not the only area driving construction growth in Indonesia. Retail building looks poised to surge in the coming years, with Bank Indonesia figures showing that the real retail sales index rose from 140.9 in 2013 to 161.3 in 2014, representing an increase of 14.5 per cent. Growth on this scale will not go unnoticed by retailers and commercial building developers - particularly given that Indonesia's population of more than 250 million people gives it a large consumer base.
Among the large retailers to have recognised the potential of Indonesia is electricals, IT and furniture store Courts Asia, which last year unveiled plans to build between ten and 12 new megastores across the country over the next five years. The company expects to invest $3 million to $4 million in each of these sites, the first of which is located in Bumi Serpong Damai and is already under construction.
Roy Santoso, chief executive of Courts Indonesia, was quoted by the Jakarta Post as saying: "We already have two or three locations in the pipeline, but Jakarta and its surrounding areas will be the focus of our expansion in the coming two to three years. As for the medium to long-term expansion, we are looking at two to three major cities in the country."
Striving to improve healthcare through hospital building
By 2019, the Indonesian government aims to have significantly developed the country's healthcare sector through its new National Health Insurance programme. This ambitious initiative, which aims to bring basic care within reach of everyone in the country, will require the construction of 150 new hospitals - delivering a major shot in the arm to the healthcare building industry.
Energy construction to deliver reliable electricity
Indonesian fuel and chemical distributor AKR Corporindo is currently working on two new power plants in East Java's Gresik Regency in a bid to guarantee a reliable electricity supply for the large industrial estate in the area.
With the capacity to generate a combined 1,200 MW of power, the two plants are scheduled to be up and running in 2018, contributing to the ongoing growth of the industrial construction sector.