Indonesia’s property market feels the pinch of a reeling rupiah

As Jakarta tightens its grip on strategic minerals, investors are fleeing and the currency is foundering—leaving developers and home buyers in limbo

It is an irony forged in metal: The world’s largest nickel exporter is experiencing a full-fledged currency crisis.

Now among the world’s worst-performing equity markets, Indonesia has seen international fixed-income funds dump IDR86 trillion (USD4.87 billion) of sovereign debt since August, a sell-off that has pushed the central bank’s holdings of local debt to a precarious 30%.

The rupiah, as of press time, has cratered to around IDR18,000 against the US dollar.

Fingers are pointing at President Prabowo Subianto’s interventionist policy shifts for the crisis. And if history is any guide, a crashing rupiah is all it takes to bring a leader down with it.

The sliding currency has done little to budge inflation-adjusted home prices. Bank Indonesia’s Residential Property Price Index grew just 0.62% year-on-year in the first quarter of 2026, the slowest growth since records began in 2003. Transaction volumes have collapsed, with overall residential sales contracting by almost 26% year-on-year as buyers head for the exits.

To defend the rupiah, Bank Indonesia announced its first benchmark interest rate increase in two years in May before pushing it higher in June to 5.75%.

The currency crash is attributed to a combination of a structural shortage of US dollars, rising import costs, and Indonesia’s resource nationalism.

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“The depreciation has been driven not only by continued global turmoil and strong domestic foreign exchange demand, but also by foreign portfolio investment outflows from Indonesia,” explains Bank Indonesia executive director Ramdan Denny Prakoso in a statement.

In May, the government issued Regulation No. 24/2026, mandating that strategic commodities such as coal and palm oil may only be exported by a state-owned enterprise, specifically PT Danantara Sumberdaya Indonesia, a new super-agency under the sovereign wealth fund. Prabowo was building on the hilirisasi policy introduced by his predecessor, Joko Widodo, including bans on raw nickel ore exports. This well-intentioned effort to move Indonesia’s nickel industry up the value chain has taken on a more assertive tilt under the current administration, inspired in part by China’s state-led industrial model and fortified by the country’s official entry into BRICS.

Spooked institutional investors, from American and Swiss asset managers to Australian hedge funds, reacted strongly, joining a “Sell Indonesia” wave of capital flight that pulled the benchmark index down by more than 36% from its historical peak. This crisis of confidence also spooked Indonesian elites, who began panic-selling rupiah assets and moving capital offshore.

Investors also questioned the government’s fiscal discipline. Only a few months earlier, Danantara had issued low-yield Patriot Bonds to affluent Indonesian families in an effort to defray Prabowo’s state development and social initiatives. The most ambitious of these, the IDR130-trillion Three Million Homes initiative (Tiga Juta Rumah), aims to extend microcredit and mortgages to low-income families. The government also recently reinstated the PPN DTP (Pajak Pertambahan Nilai Ditanggung Pemerintah) incentive for property purchases, fully waiving VAT on eligible transactions to bolster homeownership.

Worry is warranted. The crash carries faint echoes of the rupiah’s historic depreciation during the 1997-98 Asian financial crisis, a preamble to the ousting of President Suharto.

“The most pressing challenge at the moment is the depreciation of the rupiah,” says Farazia Basarah, country head of JLL Indonesia. “A government-led solution to this problem would reduce uncertainty and boost investor activity.”

Looser foreign ownership rules should, in theory, offset some of the foreign exodus and domestic stagnation. The government now allows foreigners to own property using only a valid passport, without requiring a prior residency permit, though minimum price thresholds differ across regions. The National Land Agency can issue a hak pakai (right to use) title, a renewable leasehold that can extend up to 80 years. Together with a 10-year golden visa, these options provide pathways for long-term stays in Indonesia.

Against a sliding rupiah, even a seemingly cheap villa in Bali, when priced in dollars, now carries a currency-risk premium that might deter international buyers

But the impact has been minimal. “We must admit that it is still a psychological nudge with limited take-up in Indonesia due to limited access to local financing, opaque bureaucracy, and different regulation interpretation in settling transaction documentations with local authorities,” says Hendra Hartono, chief executive officer of the consultancy PT Leads Property Services Indonesia.

“Investing in property in Indonesia is not about expecting capital appreciation or high rental yield, especially with the weakening of the rupiah, but rather for end-users who wish to stay and enjoy life in Indonesia.”

Against a sliding rupiah, even a seemingly cheap villa in Bali, when priced in dollars, now carries a currency-risk premium that might deter international buyers.

For Indonesian home buyers, the higher-for-longer rate environment could prove especially painful in the event of oil supply shocks stemming from the Iran war. Indonesia is now a net importer of petroleum products, having left OPEC in 2016.

Of 18 cities surveyed by Bank Indonesia, 10 saw slower annual price growth in Q1. Domestic home buyers are especially reticent in cities such as Surabaya, where prices contracted 0.27% year-on-year, while those in Yogyakarta and Pontianak posted quarterly declines of 0.68% and 0.74%, respectively.

“They are more cautious in buying ready-to-occupy homes than newly launched products because they have witnessed many properties halted or delayed during the pandemic up until now, especially if the products are offered by less reputable or new developers,” Hartono says.

“There will be very limited activity in new high-rise developments due to oil price hikes, high costs of imported goods, construction materials, and elevated borrowing costs.”

The industrial and logistics segment proved more resilient in the first quarter, buoyed by demand from data centres, logistics, and a shortage of developable land. According to Basarah, logistics and industrial will continue to attract investors in a market with some of the highest occupancy rates in the region. “Batam, for example, is on investors’ radar for data centres. Central Java’s industrial estates and special economic zones are attractive from an industrial and logistics perspective.”

In a recent survey, Knight Frank Indonesia found that 61% of developers and property stakeholders identified the industrial and warehousing subsector as the one expected to grow most significantly in 2026. E-commerce expansion was cited as the property sector’s “growth engine.”

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Lower mortgage rates with zero down payments and longer tenors for first-time home buyers could unlock the oversupplied condominium markets in Jakarta and other major cities, according to Hartono. In March, the government officially extended the maximum tenor for subsidised housing loans to 30 years, benefitting the “sandwich generation.”

Leveraging the consumption patterns of younger generational cohorts serves as a reasonable demand hedge in Indonesia, where nearly 60% of home buyers are now Gen Z or millennials, according to JLL Indonesia. Selling prices are consequently adjusting towards homes priced between IDR1 billion and IDR1.5 billion.

Yet the preference for landed housing runs deep and cuts across generations. “It is worth remembering that it wasn’t really until the 1990s and later that high-rise condominiums became more prevalent in Jakarta, so landed housing was the only option until relatively recently,” says Basarah. “Things will change slowly, however, as the preferences of new generations evolve.”

In the interim, the rupiah’s collapse has allowed for a pregnant pause in Indonesia’s residential property market. As buyers hold out for a currency stabilisation that may not arrive soon, experts argue for standardised regulations, uniform legal interpretations, and faster dispute resolution mechanisms.

Encouragingly, the new VAT waiver applies uniformly to both landed housing and condominiums. “Policies specifically targeting condominiums would be needed to boost high-rise residential demand,” adds Basarah.

The crisis has laid bare the tenuousness of policy credibility among the country’s economic constituencies, from high net-worth tycoons to institutional capital allocators and a young, housing-starved populace.

“The single clearest pro is that, due to the rupiah weakening, property prices have become very competitive compared with neighbouring markets,” Hartono says. “The single clearest con is the frequent change in regulations and policies.”

The original version of this article appeared in PropertyGuru Property Report Magazine Issue No. 197 on Issuu and Magzter. Write to our editors at [email protected].