Suppliers of building materials are in a prime position to capitalise on Indonesia’s booming real estate market and rising investment in infrastructure. The construction sector has outpaced Indonesian GDP growth in recent years and plays an increasingly important role in the country‘s economy. According to the Indonesian Contractors Association (AKI), the sector expanded from just over $25 billion USD in 2011 to an estimated $40 billion USD in 2013. This trend is set to continue as a vibrant economy and rising personal incomes drive demand for commercial and residential properties. In addition, the government has embarked on a massive long-term infrastructure development programme that includes projects worth hundreds of billions of US dollars. Rising private investment and government spending can be expected to make Indonesia one of the largest construction markets in the world and should secure strong demand for building materials for decades to come
With its reliance on the domestic market and government-funded projects, the building materials sector should prove relatively insulated from global economic risks. While the threat of localised overheating in the property market must not be overlooked, square metre prices in general are still low by international comparison and urbanization in Indonesia has a long way to go yet. Moreover, the country is still catching up on infrastructure development after long years of neglect. Neither should the economic slowdown in 2013 jeopardise long-term demand for building materials, because many of the stalled projects will resume once inflation and GDP growth stabilize.
The building materials sector has seen a rapid increase in investment in recent years. In 2012, the non-metallic mineral industry (which includes the production of many building materials and their ingredients) attracted 10.7 trillion RP (around $1 billion USD) in domestic direct investment in 2012 – more than any other sector apart from food, according to the Indonesian Investment Coordinating Board (BKPM). As supply has nevertheless struggled to keep up with rising demand, wholesale prices of construction materials more than doubled from 2005 to 2012, according to Statistics Indonesia (BPS).