Vol. 5, No. 11, November 2024
E-ISSN: 2723 - 6692
P-ISSN: 2723 - 6595
http://jiss.publikasiindonesia.id/
Journal of Indonesian Social Sciences, Vol. 5, No. 11, November 2024 3037
Review of Factors Affecting Purchasing Power and Investment
in Property: A Comparative Study between Indonesia and
Neighboring Countries
Endah Kusumastuti, Thania Kusmalinda, Yudistira Nugraha, Nicko Albart
Universitas Paramadina, Indonesia
Email: endah.kusumastuti@students.paramadina.ac.id, thania.kusma[email protected]dina.ac.id,
yudistira.nugraha@students.paramadina.ac.id, nicko.al[email protected]c.id
Correspondence: endah.kusumastuti@students.paramadina.ac.id
*
KEYWORDS
ABSTRACT
Purchasing Power Parity;
Property Investment; Credit
Policies; Economic Stability;
Indonesia; Neighboring
Countries
The disparity in purchasing power and investment in the property
sector between Indonesia and neighboring countries has attracted
attention in recent years. Various aspects, both macroeconomics and
socio-demographics, play a role in creating the dynamics of the
property market in each country. This research explores how these
factors - including inflation, interest rates, national incomes, and
public policies - contribute to purchasing power parity and
investment patterns in property. Through the systematic literature
review (SLR) approach with 12 articles reviewed. The findings show
that Indonesia faces challenges of limited access to credit,
unbalanced income growth, while neighboring countries such as
Singapore and Malaysia followed by Thailand and Vietnam are able
to encourage stronger investment with more stable and investment-
friendly economic policies. Hence, the results of this study suggest
that Indonesia should adopt some best practices from neighboring
countries to increase purchasing power parity and investment in the
property sector in a sustainable manner.
Attribution-ShareAlike 4.0 International (CC BY-SA 4.0)
Introduction
In the national economy, property is one of the main pillars that has a very important role.
Property has directly contributed to the gross domestic product through several mechanisms such as
property buying and selling transactions, direct activity contributions in construction activities,
foreign and domestic investments and tax revenues for the government. Currently, most of the
commercial property sector has entered the recovery phase after the Covid-19 pandemic Property
Market Report, (2023) although it needs to be recognized that the growth in the performance of this
property sector is still not very significant.
In the global property sector, it is estimated that the property sector is still characterized by
uncertainty along with slowing economic growth. However, this does not affect the performance of
the property sector in Indonesia because the property market in Indonesia still does not utilize real
estate investment trust (REITs) instruments traded in the global market and also limited offshore
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relations with Indonesian corporations. This is illustrated by the impressive growth in the mortgage
sector, which has the highest growth in property lending in 2023 (Bank Indonesia, 2024).
At this time home ownership is no longer considered as a place to live, but has been considered
as an investment instrument in the long term which is also a measure of human welfare (Budi, 2009).
By having stable prices and tending to rise and having a low level of risk, property becomes the most
profitable investment in the long term (Safrizal et al., 2024). Investment in property also has the aim
of generating profits that will be able to offset current and future consumption costs (Shim et al.,
2008). Investment in real estate is also a good hedge against inflation because property prices tend
to rise and will be able to offset the impact of rising inflation (Ibrahim et al., 2016).
Although the property sector is a promising long-term investment, it does not necessarily
encourage someone to decide to buy property as one of their investments. They consider many
important aspects produced by property and create conditions to buy products by calculating using
product prices (Rahadi et al., 2022). The factors that influence purchasing power and investment in
the property sector in each country are different, as in the Malaysian market sector. Unlike Indonesia,
in Malaysia, the property market is a dynamic trend that can be influenced by any major events in the
world and the local market (Rahadi et al., 2022). Then, what about other countries such as Thailand,
Vietnam and Singapore which are Indonesia's neighbouring countries, what are the factors that can
affect purchasing power and investment in property? Are the influencing factors the same as those in
Indonesia?
Based on the description above, this study was conducted to add empirical literature that
supports previous findings related to factors affecting purchasing power and investment in the
property sector that focus on Indonesia with comparisons to neighbouring countries such as
Malaysia, Singapore, Thailand and Vietnam. This study is expected to be an input in analyzing the
factors of purchasing power of investment in the property sector. Furthermore, this research will be
organized as follows: literature review, research methods, results and discussion, conclusions and
suggestions.
Research Methods
The research methodology used was a systematic literature review (SLR). The research journal
review tool used to make SLR transparent, capable of replication, and scientifically sufficient is the
Preferred Reporting Items for Systematic Reviews and Meta-analyses (PRISMA) 2020 (Page et al, 2021).
The journal articles themselves are searched using database tools such as Google Scholar, Web of
Science, and ScienceDirect. In the journal search, the keywords used were purchasing power, property
investment, credit policy, economic stability, Indonesia, and neighbouring countries. The criteria used
to select journals for inclusion were: (a) Indonesian and English journal articles published between
2019-2024, (b) research discussions on factors affecting purchasing power that occurred in Indonesia
and neighbouring countries such as Malaysia, Singapore, Thailand, and Vietnam. Content analysis was
used to analyze the content of journals and literature references. The flowchart of the PRISMA 2020
search method is shown in Figure 1 below.
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Figure 1. Flowchart with PRISMA 2020 Search Method
Source: Data Processed, 2024
Results and Discussion
To determine the factors that influence purchasing power and investment in property between
Indonesia and neighbouring countries, this research must have a strong theoretical basis and relevant
empirical evidence. One of the steps of gathering information sources is to search for articles that
have been published in the form of journals in trusted academic sources, where the article collection
process is carried out through Google Scholar, a platform that provides access to various academic
publications. This aims to find articles that are relevant and support the research on purchasing
power and investment in property between Indonesia and neighbouring countries. The results of the
search show that several articles can provide knowledge and data related to this research, whereas
from the search, a total of 12 articles were obtained that can support the analysis in this research.
Table 1. Total of 12 articles were obtained that can support the analysis
No.
Journal Title
Research Objectives
Key Findings
1
Factors
Influencing
Investment
Decisions in
Property and
Real Estate Sub-
sector
Companies
Examines how much the
influence of liquidity and
profitability of Property and
Real Estate subsector
companies listed on the IDX
(2018 and 2021) affects
investor interest in
investing, as an affirmation
1. Liquidity has a
significant positive
effect on stock
investment decisions.
2. Profitability has a
significant negative
effect on stock
investment decisions.
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Listed on the
Indonesian
Stock Exchange
(Safrizal et al.,
2024)
of previous research that
contradicts each other - that
is, some have an effect and
some do not.
3. Investment
opportunities also have
a negative influence on
stock investment
decisions, as companies
may prioritize other
forms of investment
such as land or property
over stocks.
2
Analysis of
Factors Affecting
Demand for
Home
Ownership
Loans (KPR) in
Palembang City:
The Case of BTN
Bank Mortgage
Customers
(Sandria et al.,
2019)
Examine the effect of income,
house prices, and interest
rates on the demand for
home ownership loans
(KPR) at BTN Bank in
Palembang City.
1. Income has a negative
but insignificant effect
on mortgage demand.
2. House prices have a
positive and significant
effect on mortgage
demand, with an
increase in house prices
by 1% will increase
mortgage demand by
0.10%.
3. Interest rates have a
negative and significant
effect on mortgage
demand, where an
increase in interest rates
by 1% will reduce
mortgage demand by
0.26%.
4. Overall, income, house
prices, and interest rates
explain 57.6% of the
variation in mortgage
demand in Palembang,
with the remaining
42.4% influenced by
other variables not
included in this research
model.
3
Determining the
Factors
Influencing
Residential
Property Price: A
comparative
study between
Indonesia and
Malaysia
Identify factors that
influence residential
property prices in Jakarta
and Kuala Lumpur. This is
studied because most
Indonesians prefer to live in
landed houses compared to
vertical housing such as
apartments. The
consideration in this study is
the impact of the COVID-19
pandemic on housing
1. In Indonesia, factors
such as housing location,
property financing, and
health have a significant
influence on residential
property prices.
2. In Malaysia, there are no
significant factors
affecting residential
property prices,
including the physical
design of housing,
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demand, costs, and prices in
both cities.
developer products, and
development concepts.
3. Analysis of the combined
data between Indonesia
and Malaysia shows that
only property funding
has a significant
influence on property
price preferences.
4. The COVID-19 pandemic
affected the housing
markets in Jakarta and
Kuala Lumpur, with
Indonesia having a
higher number of Covid-
19 cases than Malaysia,
impacting housing
demand and prices.
4
The Influence of
Macroeconomic
Factors on
Residential
Property Prices
in Malaysia
Before and
During COVID-
19 (Isyanto et al.,
2022)
Analyze the influence of
macroeconomic factors -
such as Gross Domestic
Product (GDP), private
consumption, government
spending, and household
savings on residential
property prices in Malaysia
both before and during the
COVID-19 pandemic - that
directly or indirectly affect
purchasing power on
property.
1. Positive influence: all
variables studied show a
positive influence on
residential property
prices, with personal
consumption and
household savings
having a very strong
correlation.
2. Weakly correlated to
GDP: while there is a
positive relationship
between GDP and
property prices, the
effect is not significant
compared to other
variables.
3. Statistical significance:
the regression analysis
results show that the
variables are significant
at the 5% and 10%
levels, except for GDP
which shows a weak
effect.
4. Policy implementation:
how property prices
affect household
spending and the
economy as a whole.
5
Analysis of
Consumer
Behavior and
Finance on
Knowing the variables that
influence investors' interest
in buying middle-class
properties in Batam City,
1. Significant influence: the
variables of consumer
behavior, consumer
attitude,
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Middle Class
Property
Investment
Interest in
Batam City
(Yuwono & Yeo,
2020)
especially in the midst of
property sector stagnation
due to slowing industry
growth.
overconfidence, and
financial aspects
significantly influence
investors' interest in
investing in middle-class
properties.
2. Consumer behavior:
respondents indicated
that having
opportunities and
knowledge of the market
increases investment
interest.
3. Positive attitude: a
positive attitude
towards purchasing
property drives
investment decisions.
4. Overconfidence: high
confidence in predicting
market trends increases
investment interest.
5. Financial aspects:
financial considerations,
including taxes and
payment schemes,
greatly influence
investment decisions.
6
The Effect of
Income on
Commercial
Property
Demand and
Investment
Decisions in
Semarang City
(Bakar &
Pantawis, 2020)
Knowing the extent to which
income levels affect people's
decisions to invest in the
property sector.
1. Income Effect: the
results showed that
income level has a
positive and significant
influence on property
demand and investment
decisions in Semarang
City.
2. Public Perception:
public perception of
investment decisions is
high, but they tend to
rely more on instinct
rather than considering
investment risks and
returns.
3. Income Level: the
majority of respondents
have an income in the
range of IDR 5 million to
IDR 6 million, which
influences their
investment choices,
especially in the form of
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commercial properties
such as shophouses and
boarding houses.
7
Indicators in the
Purchase of
Housing
Properties (Eze
& Lim, 2013)
Examines the influence of
several key indicators
(investment risk, inflation
hedge, property price,
investor's real income,
access to financing, and
interest rate) on investors'
decision to purchase real
estate property in Malaysia.
In addition, this study
intends to build a conceptual
framework that can be used
by the real estate industry
and researchers to develop
relevant scales and
measures in the assessment
of future property purchase
decisions.
1. Investment Risk: Low-
risk investments tend to
have a positive influence
on property purchase
decisions.
2. Inflation Protection:
protection against
inflation can have a
negative influence on
investment decisions.
3. Property Prices: high
property prices can
increase the decision to
purchase a property.
4. Available Income: higher
income increases the
ability and decision to
purchase property.
5. Access to Financing:
ease of obtaining
financing has a positive
influence on purchasing
decisions.
6. Interest Rates: low
interest rates tend to
increase the decision to
buy property.
8
Determinants of
Housing Prices:
Evidence from
Malaysia and
Singapore (Azlan
& Lee, 2022)
Analyzes the determinants
of housing prices in Malaysia
and Singapore - which
contribute to the purchasing
power of property. The main
focus is to explore the
relationship between the
Housing Price Index and four
macroeconomic variables:
Gross Domestic Product
(GDP), interest rates,
inflation rate, and
unemployment rate.
1. Gross Domestic Product
(GDP): there is a
significant relationship
between GDP and
housing prices in both
countries. An increase in
GDP is positively
correlated with an
increase in housing
prices.
2. Interest Rates: results
show that interest rates
have a positive
relationship with
housing prices in
Malaysia, although it is
not significant in
Singapore.
3. Inflation Rate: in
Malaysia, the inflation
rate shows a positive
relationship with
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housing prices.
However, in Singapore,
this relationship is
negative.
4. Unemployment Rate:
there is a negative
relationship between
the unemployment rate
and housing prices in
both countries, where an
increase in
unemployment tends to
lower housing prices.
9
Low Income
Housing
Allowance
System in
Malaysia:
Managing
Housing Need
for the Poor
(Shuid, 2010)
Analyzes the housing
allocation system for low-
income earners in Malaysia.
The main focus is to
understand how the role of
the state in distributing
housing and to evaluate the
effectiveness of the existing
housing allocation system,
including the impact of the
open registration system
(ORS) introduced to address
issues of inefficient
allocation and corruption.
1. Improved Access to
Housing: the
implementation of ORS
has helped increase
transparency and
efficiency in the
selection of
homebuyers, which in
turn reduces the number
of people living in
squatter settlements.
2. Reduction of Squatter
Settlements: from 1999
to 2006, the number of
people living in squatter
settlements in Malaysia
was significantly
reduced from 571,261 to
102,045, demonstrating
the success of the
housing program.
3. Allocation Issues:
Despite improvements,
there are still problems
in the allocation system,
including a mismatch
between housing supply
and population needs, as
well as corrupt practices
that affect access for
eligible groups.
4. The role of the state: the
state continues to play
an important role in
controlling the
allocation of housing,
both for public and
private projects, which
differs from the
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neoliberal approach that
focuses more on the free
market.
10
Key Factors
Influencing
Purchase or Rent
Decisions in
Smart Real
Estate
Investments: A
System
Dynamics
Approach Using
Online Forum
Thread Data
(Ullah &
Sepasgozar,
2020)
Analyze what factors have
led to post-purchase regret
from property
owners/renters over the
past decade.
1. Insufficient Information:
insufficient information
provided to consumers.
2. Complicated Property
Purchase Process: this is
another factor reported
to be one of the causes of
property purchase
regret.
3. Property Price: the main
reason for regretting a
home purchase decision
is buying a house that is
too expensive.
11
How
(Un)affordable is
Housing in
Developing Asia?
(Helble et al.,
2021)
Comparatively analyze the
city-level housing
affordability of 211 cities
across 27 developing
countries in Asia-Pacific.
1. Property
Unaffordability: housing
is highly unaffordable
for most urban dwellers
in developing Asia, as
much as 90% of the
region's urban
population.
2. Property Price Levels:
unaffordable housing
prices tend to be higher
in cities with larger
populations and with
lower household
incomes.
12
Housing
Inequality in
Developing Asia
and the United
States: Will
Common
Problems Mean
Common
Solutions?
(Aizawa et al.,
2020)
Further analyzing the
imbalance of housing tenure
1. In the United States
Residents in central cities
have lower access to
adequate housing than
suburban residents. In
addition to access issues,
inequality in property
ownership is associated
with household economic
status.
2. In Emerging Asia & the
United States
There is a significant
concentration of
inadequate housing tenure
among households with
lower wealth and income.
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Source: Data Processed, 2024
From the results of several journals that have been collected, it can be seen that:
Inflation and Interest Rates
Inflation and interest rates significantly affect property prices and purchasing power in most
countries. In Indonesia, the volatile inflation situation and high interest rates limit people's access to
property financing. In Malaysia and Singapore, stable inflation and low interest rates provide a more
conducive environment for property investment.
National Income and Economic Growth
The growth in national income in neighbouring countries, especially Singapore and Malaysia,
has contributed to the increase in people's purchasing power for property. In Indonesia, despite
economic growth, unequal income distribution still prevents many people from owning property.
This factor is exacerbated by low access to credit which limits the ability to purchase property,
especially for people with middle to lower income.
Influence of State Policy
Indonesia: Indonesia's housing policy tends to focus on home ownership as a long-term
investment instrument, but access to property ownership remains limited due to a lack of subsidized
housing loans and regulatory barriers.
Malaysia and Singapore: More pro-investment policies in neighbouring countries, especially
Malaysia and Singapore, are driving growth in property investment. In Malaysia, the subsidized
housing scheme for low-income earners has increased the purchasing power of the property market.
While in Singapore, the REITs (Real Estate Investment Trusts) policy and government support for
international property investment increased public interest in property as an investment asset.
Credit Access
Access to credit in Indonesia for property ownership is still very limited compared to Malaysia
and Singapore. This is a major limiting factor in increasing the purchasing power of property,
especially among people with middle to lower income. Malaysia has implemented more inclusive
policies in housing credit access, while in Singapore, the availability of innovative financing
instruments such as REITs makes property investment more attractive to both small and large
investors.
Economic Stability
Neighbouring countries such as Malaysia and Thailand have more stable economic policies that
can provide a sense of security for property investors. In Indonesia, economic fluctuations and
frequently changing fiscal policies are one of the factors inhibiting purchasing power and investment
in property.
Conclusion
This research shows that while Indonesia has great potential in the property sector, there are
several factors hindering purchasing power and investment interest, including limited access to
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credit and unsupportive policies. Compared to neighbouring countries such as Malaysia and
Singapore, Indonesia needs to improve its policy infrastructure and expand people's access to
property. By learning from best practices in other countries, Indonesia can make access to property
ownership more inclusive and attractive.
The implication for Indonesia is to increase purchasing power and property investment, where
Indonesia can learn from neighbouring countries that have successfully created a more stable and
inclusive property ecosystem. 1) Expansion of Credit Access, the Indonesian government needs to
expand access to credit, especially for people with lower-middle income, by subsidizing interest rates
and easing regulations on property ownership. 2) Pro-Investment Property Policy, Indonesia could
also consider implementing a REITs policy and encouraging foreign investment in the property sector
to strengthen the market and boost purchasing power. 3. Economic Infrastructure Improvement,
Economic stability should continue to be prioritized for improvement with measured fiscal and
monetary policies in order to increase investor confidence.
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