Indonesia Construction Market Outlook to 2030

Indonesia Construction Market Overview

• The Indonesia Construction market is valued at USD 280 billion, based on a five-year historical analysis. This market is primarily driven by rapid urbanization, government infrastructure projects, and the rising demand for residential and commercial spaces. With a growing focus on sustainability and green initiatives, the construction sector is witnessing significant advancements in technologies and materials, making Indonesia a key market in Southeast Asia for construction activities.

• The market dominance is concentrated in major cities such as Jakarta, Surabaya, and Bandung due to the rapid urban expansion and the influx of investments in commercial and residential construction. These regions benefit from improved infrastructure, a rise in foreign direct investments, and a demand surge in housing and commercial office spaces, driven by economic growth and population increase. Additionally, government initiatives such as the National Strategic Projects (PSN) play a crucial role in boosting construction activities, with key developments in transport and public facilities.
• The Indonesian government has established regulatory frameworks and standards that focus on enhancing safety, environmental sustainability, and energy efficiency. Indonesia has updated its National Standards to include mandatory green requirements for all public buildings by 2024. This regulation lays out a suite of green standards but is only mandatory for very large buildings, specifically those with a floor area exceeding 5,000 m.

Indonesia Construction Market Segmentation

• By Project Type: The market is segmented by project type into residential, commercial, industrial, institutional, and infrastructural. The residential segment holds the dominant market share due to the rising demand for affordable housing, driven by the growing urban population and government housing programs like the One Million Houses initiative. Developers are increasingly focusing on high-density housing projects in urban areas to meet the demand for affordable housing. Companies such as Ciputra Group and Agung Podomoro Land are key players in this segment, contributing to the sectors substantial growth.

• By Material Type: The market is segmented by material type into concrete, steel, wood, and others. Concrete dominates the market due to its extensive use in large-scale infrastructure and high-rise residential projects. The Indonesian construction industry is heavily reliant on reinforced concrete, especially in the development of apartment complexes and office buildings. In addition, innovations in concrete technologies, such as precast and lightweight concrete, are gaining traction, allowing for faster and more cost-effective construction.

Indonesia Construction Market Competitive Landscape

The Indonesia construction market is characterized by a mix of established local firms and global players, making it highly competitive and diverse. Prominent companies such as PT Wijaya Karya, PT Pembangunan Perumahan, and global firms like Hyundai Engineering & Construction and China State Construction Engineering Corporation are key players in this market.

Indonesia Construction Industry Analysis

Growth Drivers

• Urbanization and Housing Demand: Indonesia is experiencing significant urbanization, with 58% of the population now living in urban areas in 2024, according to the World Bank. The United Nations reports that Jakarta and Surabaya have seen large migration influxes, resulting in a demand for residential and commercial buildings. The government plans significant investments in infrastructure to support urban growth, including the development of a new capital city estimated to cost around USD 33 billion. Urban population expansion, particularly in Java and Sumatra, has increased the need for infrastructure development to accommodate this growth, including housing and public amenities.
• Government Infrastructure Projects: Indonesia's government has allocated USD 429 billion for infrastructure development under its National Medium-Term Development Plan (RPJMN) for 2020-2024. This includes more than 200 National Strategic Projects (NSPs), such as toll roads, airports, and public housing, aimed at supporting economic growth. The Ministry of Public Works and Housing confirmed that 87 NSPs have been completed by 2024, including major highway projects in Sumatra and Kalimantan, boosting the construction sector significantly.
• Rising Middle-Class Population: Indonesias middle class, defined by the World Bank as earning between USD 132 and USD 640 per day, now makes up around 16.5 % of the population in 2024, a significant increase from prior years. This population growth is driving demand for residential construction, particularly in suburban areas of major cities like Jakarta, Bandung, and Surabaya. Increased disposable income among this group has also led to higher spending on real estate and home improvements.

Market Challenges

• High Construction Costs: One of the key challenges in the Indonesia Construction market is the high cost of construction materials and labor. The price of cement, steel, and other construction materials has been rising due to inflationary pressures and supply chain disruptions. In 2023, the average cost of construction materials increased by 8%, making it challenging for developers to maintain cost-effective project delivery.
• Regulatory and Permit Complexities: Indonesia's construction sector continues to face regulatory hurdles, particularly concerning permits and environmental compliance. The World Bank's 2024 Doing Business report highlights that obtaining construction permits in Indonesia takes an average of 200 days, involving at least 17 procedures, which slows down project implementation. Government efforts to streamline these processes, such as the Omnibus Law, have made only modest improvements so far.

Indonesia Construction Market Future Outlook

Over the next five years, the Indonesia Construction market is expected to witness significant growth, driven by continued government investments in infrastructure, rising urbanization, and a growing middle class demanding residential and commercial spaces. The adoption of advanced construction technologies such as prefabrication, BIM, and sustainable practices is anticipated to reshape the market. The construction of smart buildings, focusing on energy efficiency and connectivity, will further drive innovation in the sector.

Future Market Opportunities

• Smart City and Infrastructure Development: The Indonesian government has earmarked 100 cities for smart city development under its 2024 Smart City Program. Projects in cities like Jakarta, Surabaya, and Makassar involve integrated infrastructure with IoT technology for better resource management, public safety, and transport systems. According to Indonesia's Ministry of Communication and Informatics, over $1 billion has been invested in smart city infrastructure by 2024, creating new opportunities for construction firms specialized in high-tech solutions.
• Expansion of Tourism Infrastructure: The tourism sector continues to offer robust growth potential for Indonesia's construction industry, especially with the governments focus on expanding tourism infrastructure. Indonesia is targeting 17 million tourist arrivals in 2024, up from 16 million in 2023. From January to May 2024, Indonesia recorded 5,244,213 international tourist arrivals, a 23.78% increase compared to the same period in 2023. These projects include the construction of hotels, resorts, and supporting infrastructure like airports and roads, providing opportunities for contractors in this segment.