How the One Million Housing Program Has Shaped the Indonesian Paint Industry

Indonesia's construction industry is a significant contributor to the country's GDP and a key market for construction sector investments in Southeast Asia. The One Million Housing program (PSR), introduced by Jokowi's administration in 2014, aims to reduce the housing backlog by constructing at least one million housing units annually. The program, funded by state budgets and housing financing liquidity facilities, targets people with monthly incomes less than four million rupiahs and has a down payment of only 1% of the property price. The PSR program is considered to be one of the breakthrough programs in the budgeted structural reform of the Indonesian government by relocating subsidy expenditure into productive expenditure.  In 2023, the One Million Housing Program (PSR) completed over 1.21 million residential units, demonstrating the importance of the construction sector in Indonesia's economy. The figure 1 below illustrates the growth of residential construction under the One Million Houses (OMH) program over the years.

Figure 1

Increased Demand for Paint

The growth in housing construction and the annual increase in new houses under The One Million Housing Program (PSR) positively impacted the paint industry. From 2015 to 2019, there was a notable rise in the number of new houses. Although the pandemic in 2020 slightly affected house completions, the construction pace resumed in 2021, surpassing one million units again. Data from the ministry shows that from 2015 to 2023, PSR achieved 9,206,379 housing units. In 2023, the program completed 1,010,142 units for low-income communities (MBR) and 207,652 units for non-MBR. This growth in the construction of one million houses each year has created an unprecedented demand for paint products. Every new home requires interior and exterior painting, leading to a substantial increase in paint consumption. This surge in demand spanned across a variety of paint products, from basic, cost-effective options for low-income housing to premium finishes for higher-end units. The Ministry’s Director General of Housing mentioned "The 2023 PSR achievement target is calculated based on the PSR achievements of the past three years and Indonesia's economic growth in the fourth quarter of 2022. We hope that the achievements will continue to increase every year along with the growth of the Indonesian economy,". Based on the latest data, the Indonesian economy is expected to experience stable growth in the coming years. Since construction is linked to the economy’s expansion, the increase in housing completions under the PSR program is likely to boost demand for paints and coatings in the country.

Growth in Paint Manufacturing

To meet the escalating demand, local paint manufacturers have ramped up their production capacities. Many companies have invested in new manufacturing plants and upgraded existing facilities to enhance output. This expansion has not only boosted production but also generated employment opportunities, contributing to economic growth.

Market Dynamics and Competition

The housing boom has attracted new players to the Indonesian paint market, intensifying competition. Both local and international paint manufacturers are vying for market share, leading to competitive pricing and improved product offerings. Nippon Paints and Akzo Nobel are major international players that dominate over one-third of the market. Meanwhile, the domestic company Avia Avian also holds a significant market share, serving large number of customers. Companies are investing in marketing and promotional activities to attract consumers, including discounts, awareness campaigns, and expanding distribution networks.

Challenges in the Paint Sector

Despite the positive impact, the paint industry faces several challenges. In recent years, we've seen a number of events that have had an impact on coatings demand. In 2020, the pandemic hit that halted the construction work for a period. The epidemic hit in 2020, temporarily halting construction progress. Macroeconomic difficulties, such as high inflation, encouraged central banks to implement quantitative tightening, resulting in higher interest rates. This led in a delay in construction activity due to financing difficulties, which had a negative impact on the consumption of coatings during that time. Later, construction activity restarted, increasing demand for paints, and raising raw material costs, reducing manufacturers' profit margins. Another key problem is ensuring continuous quality with rapid production increases. Maintaining high manufacturing and application standards is critical to meeting consumer expectations and regulatory obligations.

Future Prospects

The future of Indonesia's paint industry looks promising, driven by the continuous progress of the One Million Houses Program. Currently, Indonesia faces a backlog of 12.7 million housing units, which would require higher construction activities to bridge the gap in the coming years. The One Million Housing Program will continue to aid the housing needs of the Indonesian population, which will in turn increase the consumption of paints and coatings. The demand for paint is expected to remain strong, encouraging ongoing growth and innovation. As the industry evolves, a greater focus on sustainable practices and eco-friendly products is anticipated, aligning with global environmental trends.