Housing Indonesia's Population Boom

Housing Indonesia's Population Boom

A sharply rising population and a government directed move to boost housing in Indonesia is highly favourable for domestic concrete producers.

Rising populations, urbanisation and a fast-growing middle class have led to a huge need for housing and infrastructure investment right across developing Asia.

One of the areas where this is most stark is Indonesia, home to a burgeoning economy and the world’s fourth-largest population.

The Jokowi Government hopes to bring the housing shortage down from 7.6 million homes in 2015 to 5.4 million this year with a number of high-profile projects, most notably its ‘One Million Homes Program’, which aims to build more than 1 million units per year, with 70% aimed at low-income households.

Reducing the deficit and improving the standard of its subsidised housing units will be a vital part of fulfilling the UN Sustainable Development Goal 11 – ensuring access to safe and affordable housing. But there is much more to be done, with the One Million Homes Program only achieving its target for the first-time last year.


Building opportunities

Housing and infrastructure demand is likely to be an important factor for investors in Indonesia for several years to come. One area where this is creating opportunities is in cement production. This industry enjoyed a decade-long period of profit growth between 2003 and 2013[1], when demand surged – due to a rapidly expanding property market and development of the infrastructure network.

At that time, the domestic industry was controlled by three big players, who accounted for the lion’s share of supply. In addition, competition from imports was largely non-existent, due to the lack of port capacity. Cement companies therefore exerted a high level of pricing power and saw a massive increase in profitability.

However, success attracted a wave of new entrants, both local and international, which coincided with a downturn in demand as the housing boom faltered and resulted in the market swinging to an oversupplied position. Industry capacity utilisation fell sharply and pricing collapsed as new entrants tried to establish a foothold.


Source: Martin Currie calculations compiled from company reports, FactSet

An industry poised for recovery

Consumption has increased since 2016, although not to the heady levels seen earlier this decade, predominantly driven by the government infrastructure programme.

What is required for a full-blown recovery is a turn in the housing market. The government has relaxed regulation here with the aim of stimulating the property sector, but this has had a limited impact due to political uncertainty related to April’s general election. But there does now appear to be growing confidence that a recovery will materialise once this election is out of the way.

Moreover, the pace of new supply has slowed materially, meaning industry utilisation is starting to improve, enabling industry participants to push through price increases. While we are seeing industry consolidation, with the top-two players now controlling more than two thirds of the market.

The worst is over for the industry and recovery is underway, and the long-term outlook for cement demand in Indonesia is very attractive. As efficient, low-cost operators with a dominant market position, the big industry players are very well positioned to take advantage of this.

Of course, the path will not be smooth given the cyclicality of the industry, but we believe significant returns are available for investors who are prepared to take a long-term view.


[1] Source: FactSet



Important Information


All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.

This material is approved for distribution in those countries and to those recipients listed below. Note: this material may not be available in all regions listed.

All investors and eligible counterparties in Europe, the UK, Switzerland:

In Europe (excluding UK and Switzerland), this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.

All Qualified Investors in Switzerland:
In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH, authorised by the Swiss Financial Market Supervisory Authority FINMA.  Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.

All investors in the UK:
In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People's Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC's commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC's commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:

This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.

All Investors in Australia and New Zealand:

This document is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827).  The information in this document is of a general nature only and is not intended to be, and is not, a complete or definitive statement of matters described in it. It has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person.