The property industry has extensive connections with other parts of the Indonesian economy. Housing and commercial property development stimulates construction, manufacturing, banking, financial services, and household consumption. Because of these connections, changes in economic conditions can quickly influence property prices, investment decisions, financing costs, and consumer purchasing power.
Over the past decade, Indonesia has experienced significant changes in its macroeconomic environment. Inflation increased sharply in 2022 following higher energy prices and supply-chain disruptions. Although inflation subsequently declined during 2023 and 2024, earlier price increases continued to affect construction costs and property prices. At the same time, Bank Indonesia adjusted its policy interest rate as part of efforts to maintain economic and monetary stability. These developments made inflation and interest rates particularly important indicators for the property market.
The study used a quantitative approach based on 120 monthly observations from January 2015 through December 2024. Inflation data came from Statistics Indonesia (BPS), while the Bank Indonesia policy rate and Residential Property Price Index (RPPI) were obtained from Bank Indonesia. The RPPI was used as the main indicator of property industry performance. The researchers applied multiple linear regression to determine how inflation and interest rates were associated with changes in property industry performance.
One of the key findings was that inflation had a positive and statistically significant relationship with property industry performance. The regression coefficient for inflation was 0.285, with a significance value of 0.010. In practical terms, the analysis found that increases in inflation during the observation period were accompanied by increases in the property price performance indicator.
The researchers explain that inflation can push up the cost of construction materials, labor, land acquisition, and other development inputs. Developers may respond by adjusting property prices to reflect higher production costs. As a result, increases in property prices can be reflected in a higher residential property price index.
However, the authors caution that the positive relationship does not mean that continuously rising inflation will always benefit the property industry. Moderate inflation may support the value of real assets such as property, which investors often regard as a long-term store of value. Excessively high inflation, on the other hand, can reduce household purchasing power, increase financing costs, and eventually weaken demand for residential and commercial properties.
The study also found that Bank Indonesia’s policy interest rate had a positive and statistically significant relationship with property industry performance. The regression coefficient was 0.516, with a significance value of 0.000. Its standardized Beta coefficient reached 0.527, compared with 0.343 for inflation, indicating that interest rates made a stronger statistical contribution to explaining variations in property industry performance within the model.
This result may appear different from the conventional expectation that higher interest rates weaken property demand because they increase borrowing and mortgage costs. The researchers emphasize that the finding should be interpreted within the broader economic conditions observed during 2015–2024. Changes in interest rates occurred alongside economic recovery, investment activity, and property price movements. Therefore, the statistical relationship reflects the combined movement of economic variables rather than proving that higher interest rates directly cause better property performance.
When inflation and interest rates were examined together, the results remained statistically significant. The regression produced an F-statistic of 27.649 with a significance value of 0.000, confirming that the two variables jointly contributed to explaining changes in Indonesia’s property industry performance.
The model’s R² value of 0.599 means that inflation and the Bank Indonesia policy interest rate explained approximately 59.9% of the variation in the property performance indicator during the study period. The remaining 40.1% was associated with factors outside the model, including economic growth, household income, government housing policies, exchange rates, banking conditions, investor expectations, and other market-specific factors.
For policymakers, the findings underline the importance of maintaining macroeconomic stability. Inflation control and carefully calibrated monetary policy can help create a more predictable environment for property investment. For property developers, monitoring inflation and interest-rate movements can support decisions involving pricing, investment planning, financing structures, and project development.
Investors can also use these indicators when assessing opportunities and risks in the property market. Rather than considering inflation or interest rates in isolation, the findings suggest that both should be evaluated as part of the broader economic environment.
The study also highlights an important limitation. Its analysis focused on only two macroeconomic variables and one principal measure of property industry performance. Future studies could incorporate GDP growth, exchange rates, household income, housing demand, construction costs, consumer confidence, banking-sector conditions, and government housing policies. Researchers could also compare residential, commercial, and industrial property markets to determine whether different segments respond differently to macroeconomic changes.
Overall, the study by Yudi Pungan, Diana Beatris, and Arniwaty of Universitas Palangka Raya provides evidence that inflation and interest rates are closely associated with Indonesia’s property industry performance. The findings reinforce the importance of macroeconomic stability for the long-term resilience of the property sector while showing that interest rates made a stronger statistical contribution than inflation in the model.
Author Profiles
Yudi Pungan is an academic at the Faculty of Economics and Business, Universitas Palangka Raya, with research interests related to development economics, macroeconomics, and economic policy.
Diana Beatris is an academic at the Faculty of Economics and Business, Universitas Palangka Raya, with interests in economics, management, and business-sector development.
Arniwaty is an academic at the Faculty of Economics and Business, Universitas Palangka Raya, with research interests related to macroeconomics, economic development, and strategic industries.
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