Indonesia’s rising proptech scene at risk as middle class shrinks

The past year has been a mixed bag for Indonesia’s proptech scene.

Lamudi Indonesia, for one, laid off employees in late 2023. Around the same time, PropertyGuru exited Indonesia after closing its Rumah marketplace, which was the country’s second-largest proptech platform in terms of traffic and engagement.

But things may be turning for the remaining players. Lamudi Indonesia recorded positive EBITDA in April after “a tough last two years,” said CEO Mart Polman in an interview during the Tech in Asia Conference 2024 in Jakarta.

Rukita has similarly claimed profitability. Along with a few others, it has raised fresh funds this year despite the tech winter – or perhaps because of it.

“In challenging business conditions, investors are increasingly cautious in allocating funds. Proptech remains in demand due to its stability as a well-established industry,” says Darryl Ratulangi, managing director at OCBC Ventura. His firm has invested in Rukita and Jendela360.

Proptech also stands to benefit from the housing policies of Indonesia’s new president, Prabowo Subianto. However, the challenges are numerous, such as the mismatch between property supply and demand, a shrinking middle class, and the rise of the sandwich generation.

The government’s hand

At the TIA Conference, Polman said the pandemic was actually a “blessing in disguise” for proptech platforms like Lamudi, as it showed that people didn’t stop buying homes – a primary need. As per company data, online property sales grew by 36.8% from June 2020 to June 2021.

Moreover, many houses and apartments were sold as prices dropped during the pandemic, according to Colliers International Indonesia.

Edmund Carulli, vice president of investments at Living Lab Ventures, Sinar Mas Land’s VC arm, shares that the property sector has higher transaction values than others, which makes it attractive.

However, the primary thesis for proptech investors remains Indonesia’s “housing backlog narrative,” referring to the amount of households who don’t own homes. In 2023, the backlog rate was at 13.56%, representing about 9.9 million households.

Dayu Dara Permata, CEO and founder of Pinhome at Tech in Asia Conference Jakarta 2024 / Photo credit: Tech in Asia

To address this, the new administration under Prabowo has established a dedicated department: the Ministry of Housing and Settlement Areas. Government policies aimed at boosting home purchases include a 100% VAT incentive for homes priced up to 5 billion rupiah.

The Prabowo administration is also targeting the construction of 3 million new homes per year – up from former President Joko Widodo’s annual target of 1 million units.

Affordability issues

Too concentrated on Jakarta?