Letting Foreigners Buy Indonesian Property
    Category: Column By : Todd Lauchlan Read : 1582 Date : Wednesday, August 12, 2015 - 00:26:18

    It is becoming increasingly clear that Indonesia will revamp its rules on foreign ownership of property. On June 24 Finance Minister Bambang Brodjonegoro said his ministry is working on changing the 1996 regulation on foreign ownership of real estate. The government telegraphed its interest in new regulations early, after President Joko “Jokowi” Widodo touted the issue during his election campaign. It now appears that he will follow through with those promises.

    Allowing foreigners to buy property could lure important new international investment to Indonesia at a time when the government needs the cash to boost infrastructure spending and welfare benefits. JLL estimates that the new regulations could annually bring $2 billion in taxes, assuming total purchases of $5 billion and a 40% tax rate.

    The most recent discussions indicate that foreign buyers would be able to purchase properties worth more than Rp 5 billion ($375,000), and those homes must also be greater in size than 150 sqm. The rules would most likely only apply to non-landed properties.

    The change would help offset the negative effect of the recent increase in the luxury tax. The new tax, in effect as of June, slaps an extra 5% tax on the selling price of houses or apartments worth more than 5 billion rupiah or larger than 400 sqm (for houses) or 150 sqm (for apartments).

    As the Rp 5 billion restriction on foreign buyers would only impact the market’s top end, it should not price out local purchasers. Moreover, foreigners would be able to sell their properties to locals, a significant change from existing regulations. They could also lay down deeper roots in Indonesia. Foreigners may be able to qualify for residential permits after buying Indonesian property, according to Public Works and Public Housing Minister Basuki Hadimuldjono—a double boost not just for the housing industry but for the economy as a whole.

    The government projects that this year for construction to grow 14%, or around Rp 446 trillion ($35 billion), driven by plans to accelerate infrastructure development. Indonesia’s construction industry was worth $267 billion last year, the fourth biggest in Asia after China ($1.8 trillion), Japan ($742 billion) and India ($427 billion).

    It is often forgotten that foreigners can in fact already purchase property, under the “hak pakai,” or “right to use” title. While not the same as “hak milik,” or freehold, hak pakai nevertheless gives foreigners the opportunity to renew their holding every 25 years. Under the new regulations, the renewal process would be eliminated, and the hak pakai permanent. The prime targets for any new foreign investors would most likely be central Jakarta and Bali vacation homes, though the rule changes would likely apply only to apartments and exclude landed homes.

    Making hak pakai permanent as well as allowing sales to Indonesians would create a sense of security among foreign buyers. A hak pakai property should also be bankable—enabling foreigners to have mortgages where previously it was always 100% cash payment. The new rules should reinforce Jakarta’s status as one of the most attractive business and resort hubs in Asia.