We are positive on the Indonesia property sector, underpinned by a stable price outlook, improving affordability, and a more sustainable demand structure. With low mortgage penetration and lending rates likely to trend lower, we see a favorable long-term setup for the sector. We initiate coverage of Bumi Serpong Damai (BSDE IJ), Ciputra Development (CTRA IJ), Pakuwon Jati (PWON IJ), and Summarecon Agung (SMRA IJ)—all Buy-rated.

Healthier residential market structure

Indonesia’s residential market is transitioning toward a healthier, end-user-driven structure after years of speculative demand that pushed prices ahead of income growth. The shift in demand from speculators to end users might give room for home buyers to gradually catch up with property prices. Over the long term, demand should be sustained by rising urbanization, deeper mortgage penetration, and lower lending costs. As such, we expect consolidated pre-sales to grow by an average 5% over 2025-28F (vs 1.2% during 2015-24) to IDR31tn by 2028F (see Fig.3).

Integrated townships as key beneficiaries

Developers with integrated assets stand to benefit the most from healthier pre-sales growth, in our view. Each of the four developers holds a distinct position within our preferred subsectors of malls and shophouses. We believe mall assets still offer room for recovery, as occupancy remains below pre-Covid levels amid rising traffic. Meanwhile, shophouses continue to benefit from growing residential populations, particularly across the outskirts of Greater Jakarta.

Compelling performance met with attractive valuation

We initiate coverage with a constructive stance on the sector, with PWON and CTRA as our top picks owing to their robust expansion pipelines, stable earnings outlook, and potential for dividend growth. We are also positive on BSDE and SMRA due to their strategic position, integrated township development, and solid shophouses sales. The sector currently trades at 7x PE and 0.5x PB—both 1SD below their average over the past 10 years—while maintaining a stable ROE of 7-8%. Investor ownership has been at its lowest since 2017, suggesting potential for a re-rating. At our target prices, the stocks would trade at 9-11x FY26F PE, or ~0.5SD below their 10-year average.

Fig. 1: Stocks for action

Fig. 2: Property segment outlook

Fig. 3: BSDE, CTRA, PWON, and SMRA – combined marketing sales trend

Investment thesis

Beneficiary of urbanization and economic growth

Indonesia’s property market, though fragmented, is centered in Greater Jakarta with approximately 40% market share, and with sales mostly contributed by the residential segment (c. 60% of annual property sales, according to Mordor Intelligence). Such a landscape, in our view, highlights the property sector’s stance as a major beneficiary of urbanization and economic growth.

Indonesia is in the midst of rising urbanization, with expected contribution of urban population to be 70% by 2035E (Statistics Bureau) compared with 60% currently. Additionally, Greater Jakarta saw the fastest wage CAGR at 6% over 2019–2024, which we believe should continue given the higher blend of formal jobs. Both factors, in our view, should drive demand, particularly for the residential segment, due to necessities and growing infrastructure in Greater Jakarta.

Our study shows a high correlation between GDP per capita and a country’s real estate value. Indeed, when China doubled its GDP per capita (2010–2019), the country’s real estate value delivered an 11% CAGR (see Fig. 6). As such, we are positive on Indonesia’s property market, particularly given the potential upside over the long term.

Fig. 4: Urban population growth – potential addition of 34mn urban population

Fig. 5: Greater Jakarta has the fastest wage growth vs other regions

Fig. 6: China case study – strong GDP per capita, urbanization, lower rates, and stable price push higher property sales

Fig. 7: Room to grow – Indonesia households’ low indebtedness and high lending rates

Improving affordability: mortgage and VAT incentives

We believe residential housing affordability should improve going forward due to: 1) limited increase in residential prices, stemming from higher incremental supply and price competition; 2) limited upside risks for mortgage rates; and 3) extension of VAT incentives.

We observe that residential property prices grew 3x faster during the period when demand exceeded supply (i.e., 2012 – 2013, 2017 – 2019, and 2022). However, for 2025, we believe the incoming net incremental supply of residential properties could expand at its fastest pace since 2011. This, coupled with increased competition from the secondary market, could continue to put pressure on primary market pricing.

With regard to the mortgage rate, we believe there is limited upside due to already weak mortgage growth and rising NPLs. In our view, Bank Indonesia’s objective to boost growth also suggests a more accommodative rate policy, which we believe is possible due to Indonesia’s relatively high real rate compared to peers.

Lastly, VAT (current rate of 11%) incentives effectively boost buyers’ purchasing power by 11%. As the MoF has committed to offering full VAT waiver for 40k houses until 2027, we believe developers could continue to develop residential products of <IDR2bn/unit, to capture the tailwind.

Fig. 8: Greater Jakarta’s largest incremental net supply – limited room for price growth

Fig. 9: Wider ASP gap of primary and secondary market limits acceleration of price in primary market

Fig. 10: Rising NPL and slow mortgage growth should put a cap on mortgage rates

Fig. 11: Periods of accommodative policy rate tend to lower deposit rates, expanding margin for banks, as such, limited urgency for higher mortgage rates

Investment risks

The following risks might undermine our thesis: (1) persistent weak purchasing power; (2) uncertainty over fiscal incentives; and (3) insensitive deposit rates and tight liquidity.

Weak purchasing power reflects slower formal job creation and a rise in informal employment, which together shrink the pool of potential property buyers. It could offset the boost from VAT waivers, as banks might be reluctant to lend due to asset quality concerns.

VAT incentives, introduced since 2021, are announced annually with varying technicalities and occasional delays, complicating developers’ inventory and land bank management, while exerting pressure on margins. A full removal of these incentives could also dampen property demand.

Lastly, as we expect a more accommodative policy stance, there is a risk that deposit rates might remain insensitive to banks’ cost of funds, while liquidity conditions stay tight. Consequently, mortgage rates might increase to compensate for elevated cost of funds.

Fig. 13: Weak formal job creation

Fig. 14: Assessment of BI rate cycle to banks’ CoF – 35bp CoF decrease per 100bp BI rate cut

Valuation and recommendation

We view property sector valuations as undemanding (Fig. 15 – 18), with listed developers still under-owned, in our view. Although near-term catalysts are limited, the sector’s solid performance and resilient outlook point to an asymmetric upside, as valuations continue to trail fundamentals. Our preference order is PWON > CTRA > BSDE > SMRA. We favor PWON as we view malls as the most resilient subsector in the near-term macro backdrop, given lease agreements are signed upfront, and thus they are less exposed to short-term fluctuations in purchasing power vs development projects. 

We favor CTRA in the residential segment due to its diversified and well-positioned portfolio. Besides the ability to capture regional tailwinds (e.g., CPO in Sumatra), the blended ASP for the company stands below IDR2bn/unit, allowing it to enjoy full benefits of the VAT waiver. Additionally, expansion in healthcare, which we view as a scarce asset in Indonesia, opens another source of growth for CTRA.

For BSDE and SMRA, we believe their edge lies in the integrated township development, where strong residential portfolio growth has a positive spillover effect on the sale of their shophouses. We also view the Central Business District (CBD) concept in BSDE and SMRA as a key advantage, likely supporting further ASP appreciation, as buyers are increasingly drawn towards integrated city and CBD-style developments. It could further improve the company’s residential and shophouses sales.

Our TP of IDR500 for PWON is derived from a DCF model assuming a 7.0% risk-free rate, a beta of 0.9, and a WACC of 10.9%. At our TP, PWON would trade at 10x FY26F PE. Currently, the stock trades at 7x FY26F PE.

Our TP of IDR1,500 for CTRA is derived from SOTP of its real estate and recurring revenue segment. For the property development segment, we use a DCF model assuming a WACC of 14%, beta of 1.1, and a risk-free rate of 7.0%. The recurring revenue segment uses the same assumption with additional terminal growth of 2.5%. At our TP, CTRA would trade at 11x FY26F PE. Currently, the stock trades at 7x FY26F PE.

Our TP of IDR1,270 for BSDE is derived from SOTP of real estate and recurring revenue. The property development segment uses a DCF-based NAV, assuming a WACC of 12%, beta of 1.0, and a risk-free rate of 7.0%. The recurring segment uses DCF-FCFF and terminal growth of 2.5%. At our TP, BSDE would trade at 9x FY26F PE. Currently, the stock trades at 6.8x FY26F PE.

Our TP of IDR530 for SMRA is derived from SOTP of real estate and recurring revenue. The property development segment uses a DCF-based NAV, assuming a WACC of 11%, beta at 1.1, and a risk-free rate of 7.0%. The recurring segment uses DCF-FCFF. At our TP, SMRA trades at 8x FY26F PE. Currently, the stock trades at 6.4x FY26F PE.

Fig. 15: Property valuation table

Fig. 16: Property sector discount to NAV band

Fig. 17: Property sector PE trend – at -1SD of 10Y

Fig. 18: Property sector PB band – below -1SD of 10Y

Fig. 19: Property sector ROE band – relatively stable at 7-8%

Fig. 20: Property sector dividend yield trend – growing yield

Fig. 21: Property sector dividend payout trend – growing payout trend

Fig. 22: Property sector local ownership trend – lowest since 2017

Fig. 23: Property sector foreign ownership trend – lowest since Covid

Total shareholders’ return (TSR)

From 2022 to 2025, the property sector (including BSDE, CTRA, PWON, SMRA) booked a TSR of negative 4.8% per year, driven by lower stock prices. Dividend provides limited cushion, given the small yield and payout ratio. We believe there would be an asymmetric upside to the property sector’s TSR, as: 1) PE multiples are already relatively low, in our view, implying limited downside at the current growth outlook; 2) stable net profit growth; and 3) significant room to grow dividend as payout rates remain low amid growing profit. Collectively, we estimate the companies under our coverage could deliver 30-60% TSR in 2026F, largely driven by price appreciation, as we believe dividend yields will continue to be relatively small (2–3% yield).

Fig. 24: Property sector TSR - dragged by lower PE multiples

Fig. 25: Cumulative NPAT and dividend trend — stable payout ratio at 10%, with dividends paid approximately 9% of cumulative OCF

Fig. 26: Higher dividend outlook is also supported by stable capex disbursements

Fig. 27: Growing yield and payout, room to expand further

Industry overview

Residential segment: Larger incremental supply, VAT incentives, and room for lower mortgage rates

We have a positive view on Indonesia’s residential market, as stable property prices amid increasing supply should support strong sales momentum. Unlike the property boom period during 2010–2013, where demand outpaced supply growth, current observation suggests that higher supply is coming to the residential market. We believe that this trend will continue, and as such, might give room for homebuyers to catch-up with the already-elevated residential prices. Indeed, residential price typically grows 3x faster when demand outpaces supply.

Short-term, VAT incentives and rate cut cycle should continue to provide buffer for residential purchases, in our view. VAT (current rate at 11%) incentives effectively cut 11% of the overall costs to own the property. Additionally, we notice an increasing number of mortgage utilization as payment type, indicating a larger sensitivity of buyers toward movement in mortgage rates. Our findings suggest that rate-cut cycles tend to improve banks’ interest margins as they are strongly correlated with cost of funds; as such, we see limited room for mortgage rates to go higher.

In this backdrop, we prefer companies with residential portfolios priced at <IDR2bn/unit, higher portion of mortgage buyers, and well-diversified projects to capture the regional tailwind (e.g., better purchasing power from agriculture prices). Our preference order in the residential sector is CTRA, BSDE, SMRA, and PWON. Moreover, we believe BSDE and SMRA shophouses might benefit from growing traffic and population, as they continuously maintain integrated township models.

Fig. 28: Greater Jakarta residential market – the largest net supply expansion in 2025

Fig. 29: We expect slower property price growth due to net supply expansion (2012 – 2025)

Fig. 30: Expecting a period for home-buyers to catch up with property prices

Recurring segment: Positive on malls, selectively positive on hotels

We are positive on the recurring segment, particularly on malls, while selectively positive on hotels. We favor mall owners and operators due: to 1) increasing demand from tenants, particularly for strategically located malls; 2) declining supply outlook, which increases owners’ and operators’ pricing power; and 3) their potential to benefit from urbanization and shifting consumption trend. We believe the strong industry trend should continue, given the sizeable expansion plans of retail spaces, steadily improving occupancy rate, and the possibility of a gradual increase in rental and services rate.

We are positive on high-end hotels (4–5 stars), given the stability of the upper consumer class, while we are cautious on mid-low hotels that might be impacted by the soft purchasing power of the urban mid-low income segment and slow government spending. Unlike malls, hotels cater directly to consumers, making their demand more volatile due to fluctuations in purchasing power and seasonality. Our industry checks suggest that mid-to-low class hotels are experiencing a decline in room rates.

Fig. 31: Greater Jakarta declining vacant NLA command operators’ pricing power

Fig. 32: Occupancy is yet to return to pre-Covid levels

Fig. 33: Property developers’ NLA (000' sqm)

Fig. 34: Hotels with 3-stars or lower command >50% share of Indonesia’s hotel rooms, limiting scope for gradual room rate growth

Offices and apartments: Oversupply persists

We remain cautious on the offices and apartments segment, given the persisting oversupply which limits room for price appreciation. Importantly, we believe that the listed companies have well anticipated this trend, and as such, are highly meticulous in introducing new pipelines. Collectively, we estimate that these segments currently constitute less than 15% (3–4% offices, 11–12% apartment) of the listed companies' NAV.

Declining office occupancy rate has driven landlords to prioritize filing vacancies over increasing rents. Our on-the-ground checks suggest landlords are more focused on tenant acquisition rather than rate hikes. For apartments, we believe the segment faces asymmetric information relating to development pipeline, leading to market oversupply. The concentration of apartments’ market in urban areas (90% total, see here) also exposes the segment to the weakening purchasing power of urban mid-low income earners. Our observation of apartment supply suggests that, in some areas, secondary market prices are lower than those in the primary market.

Fig. 35: Jakarta apartments’ cumulative oversupply limits price appreciation

Fig. 36: Indonesia developers have reduced their apartment exposure; PWON’s high exposure towards apartments is driven by its superblock concept

Fig. 37: Competition with secondary market weighs on apartments’ price appreciation

Based on our survey, Jakarta’s secondary apartment price is discounted by 20%, which presents competition towards the primary market. Moreover, buying a secondary apartment may present buyers with more attractive yield.

Fig. 38: Jakarta’s apartment gross yields – South Jakarta has the highest yield

Fig. 39: Declining occupancy weighs on landlords’ charges

Fig. 40: CTRA, SMRA, PWON office mix has significantly declined since 2016; BSDE has limited exposure to office segment in its pre-sales

Fig. 41: Limited exposure of listed companies’ NAV to office portfolios