In the previous article, we discussed the real estate
cycle in broad terms, including its four stages, contributing factors, how to identify the current stage, and the potential impacts. Now, let us focus on the Recovery Phase of the real estate cycle, which is where Indonesia currently stands.
Real Estate Cycle Overview
The real estate cycle consists of four phases: Recession, Recovery, Expansion, and Hyper Supply. It is not a linear sequence of separate events but rather a circular and continuous pattern. This means that the recovery phase is not the final destination, but a bridge between downturn (recession) and growth (expansion).
This characteristic implies that market participants should not focus solely on identifying recovery. Instead, they must remain proactive in anticipating and preparing for the next phase. In doing so, one can formulate strategies that are more adaptive and long-term oriented, rather than merely reactive to current market conditions.
What is the Recovery Phase?
The recovery phase marks the beginning of renewal in the property market, rising from the bottom point of the recession. It is generally characterized by a gradual increase in demand and improved absorption of available supply. In the early stage of recovery, occupancy rates and rental prices remain low, reflecting the sluggishness of the recession. New project development is typically slow or paused but begins to pick up as market confidence returns.
It’s important to note that recovery is not a single point in time, but a spectrum ranging from the lowest condition to visible growth. Investors need to understand where exactly the market sits within this spectrum in order to tailor their strategies, as opportunities and risks vary across sub-phases. For example, early recovery may offer easier negotiations, while competition tends to increase in the later stages.
Key Indicators of a Property Market in Recovery
Recognizing the recovery phase requires observing several indicators that reflect market shifts:
- Occupancy Rates & Property Demand: Initially low, both metrics begin to rise as businesses recover and leasing activity increases. A decline in vacancy rates often signals a turnaround.
- Property Prices & Rental Rates: Rental growth may be stagnant or negative early on, and property prices may be flat or slightly declining. As recovery progresses, these begin to stabilize and then increase. In Indonesia, the Residential Property Price Index (IHPR) by Bank Indonesia has shown a recovery trend post-pandemic, starting to rise in Q1 2022 after hitting its lowest in late 2021.
- New Construction Activity: Stagnant during recession, construction picks up gradually as demand rises and market optimism returns.
Recovery is often marked by what is called “quiet growth”, changes that are not immediately visible to casual observers. While surface signs may still appear weak (longer marketing periods, fewer bidding, or price reductions), underlying trends such as increased buyer interest, stable mortgage rates, and modest price increases start to indicate a shift. The ability to detect these subtle signals gives investors a competitive advantage.
One crucial supply-side factor is that, in early recovery, “it’s often more expensive to build than to buy” existing property. High labor and material costs discourage new projects, naturally tightening new supply. As demand increases, this constrained supply strengthens existing property prices, accelerating supply-side recovery. This is a market mechanism that helps stabilize and lift real estate values.
Opportunities & Advantages for Property Owners and Investors
1. Investment Return Potential
The recovery phase is highly attractive for investment and speculation since property prices remain low. This opens opportunities for high ROI through future operations or resale. Smart investors may acquire under-market assets from distressed sellers still affected by post-recession conditions.
However, the “buy low” strategy in recovery requires both liquidity and patience. Optimal returns from capital appreciation may not materialize until the expansion phase, when rents accelerate. Recovery is not a phase for quick wins, it’s a time for strategic accumulation that calls for longer investment horizons and holding power.
2. Portfolio Diversification & Asset Stability
Property investments are gaining attention again as a way to diversify portfolios. Compared to more volatile instruments like stocks, real estate offers long-term value stability. It is seen as a real asset that provides security and acts as an inflation hedge, preserving capital purchasing power and making property a promising choice in today’s economy.
Diversification in real estate doesn’t only mean different property types (residential, commercial, industrial) or locations, it also includes investing across different phases of the cycle. Acquiring assets during recovery, when prices are still relatively low, can help balance a portfolio that may be overexposed to properties purchased at peak expansion values. This approach reduces risk and enhances long-term return potential.
3. Passive Income Growth & Property Appreciation
While rental growth may stagnate early in recovery, it gradually improves with rising occupancy. This is one of property’s core strengths: the ability to generate sustainable income.
High rental demand during recovery reflects renewed end-user demand, actual housing or business needs, not just price speculation. Increased leasing activity signals true economic and employment recovery. It is a healthier, more sustainable phase of market rebound, driven by real user demand rather than speculative hype.
In conclusion:
The recovery phase of the real estate cycle is a crucial turning point, marking the market’s rise from recession and presenting significant investment opportunities, even amid early skepticism. This recovery lays the foundation for the coming expansion. However, the process isn’t always smooth. The biggest challenge is identifying true recovery, avoiding “false starts” driven by global uncertainty or misaligned policies that may permanently shift market behavior.
For property owners and investors, understanding this phase is essential for maximizing long-term gains. Now is a prime time to acquire underpriced assets, diversify holdings, and harness income and appreciation potential. But it also demands patience, financial readiness, and deep market insight. With careful strategy and solid understanding of indicators and risks, investor can navigate this recovery effectively and position themselves for success in the next growth wave.
Thank you for reading: “Recovery Phase of the Real Estate Cycle”!
Related readings:
Sources:
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Penilaian.id oleh Asti Widyahari
Property Valuer & Advisor
Ni Luh Asti Widyahari, S.T., M.T., MAPPI (Cert)., is an experienced property valuer and advisor based in Jakarta, Indonesia, with extensive expertise in property valuation and property consultancy. She is the founder of Penilaian.id and CekNilai.id. Asti is also an active speaker at international conferences, promoting the property valuation profession and professional development in the sector.
Tentang Asti Widyahari
Ni Luh Asti Widyahari, S.T., M.T., MAPPI (Cert)., adalah Penilai dan Advisor Properti berpengalaman yang berbasis di Jakarta, Indonesia, dengan keahlian dalam penilaian properti dan konsultasi properti. Ia adalah pendiri Penilaian.id dan CekNilai.id. Asti juga aktif sebagai pembicara di konferensi internasional, mempromosikan profesi Penilai dan pengembangan profesional di sektor ini.
