Foreigners Still Not Eager to Buy Property in Indonesia

Enggartiasto Lukita, Honorary Chairman of the REI who recently replaced Thomas Lembong as Indonesia's new Trade Minister in a cabinet reshuffle, stated that the easiest solution (to boost foreign appetite to buy property in Indonesia) would be to make it mandatory that all high-rise apartment building projects are developed on land under the so-called ‘right-of-use’ title (in Indonesian: hak pakai). He plans to discuss this matter with the Minister of Land & Spacial Planning and the National Land Agency (BPN).

In 2015 Indonesian President Joko Widodo signed a regulation that allows expats to purchase property under this 'right-of-use' title, up to a maximum period of 80 years (the expat buys the property for an initial period of 30 years but he can extend it twice, up to a total of 80 years). A new requirement for the foreigner is the minimum value that has been set on landed houses and apartment units. By setting very high minimum values it will only impact on the market's top end (hence not pricing out local buyers).

Actually, previously, foreigners could already purchase property under the right-of-use category. However, the latest change gives this title a more permanent character. Still, this 'right-of-use category is not as strong as the 'right-of-ownership category (in Indonesian: hak milik).

However, there are no Indonesian property developers that develop apartments under the right-of-use category as this category is not popular among the Indonesian population. Naturally, Indonesians prefer to have the stronger right-of-ownership (which lasts indefinitely). Therefore, many property developers may not agree with the plan of Minister Lukita as they could see a big portion of their market vanish. However, according to REI Chairman Eddy Hussy, property developers actually agree with this proposal, possibly because not many development projects qualify for the minimum value that has been set for purchase of Indonesian property by a foreigner.

Price Mechanism Foreign Ownership of Landed Houses and Apartments in Indonesia:

Zone	Landed House Minimum value that can be purchased by foreigner	Apartment Minimum value that can be purchased by foreigner
Jakarta	IDR 10 billion	IDR 5 billion
Banten West Java	IDR 5 billion	IDR 1 billion
East Java	IDR 5 billion	IDR 1.5 billion
Bali	IDR 3 billion	IDR 2 billion
Central Java Yogyakarta	IDR 3 billion	IDR 1 billion
NTB North Sumatra East Kalimantan South Sulawesi	IDR 2 billion	IDR 1 billion
Other Regions	IDR 1 billion	IDR 750 million

^{Source: Investor Daily}

The next hurdle is to allow mortgages for foreigners. Currently, local banks will not sell mortgages for property under the right-of-use title. Lukita therefore suggests to change this and allow property under the right-of-use title to be used as collateral when purchasing a mortgage. Currently a foreigner is still required to pay 100 percent in cash for the property under the right-of-use title.

Read more: Overview of Indonesia's Property Sector

It also remains unclear whether the foreigner who purchases property in Indonesia needs to live and/or work in Indonesia or can be a resident of a different country. According to the latest "speculation", the Indonesian government may allow non-resident foreigners to buy Indonesian property (and in fact give provide them with a five-year resident permit after the purchase as a bonus). We will wait for this story to crystallize.

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Stephen Saunders | 15 August 2016 15:17

Having worked in RE Investments in New York City, Dubai and SE Asia - foreigners are still very wary of purchasing real estate assets here and this unfortunate - as it really boosts business and brings in FDI.
Many investors outside of Indonesia see the new ownership laws as 'punitive'; meaning, if as a foreigner I buy a condo, I cannot rent it out if I am not using and if I do, the gov't. can confiscate it... (unless I deed it to a local) OR, if a buyer /owner is out of the country for one year and one day - the gov't can confiscate it unless I deed it to a local ?? (by contrast the Vietnam market is booming with foreigners buying condo's and renting them out and netting a 6% return AFTER paying the management fee and 20% income tax on the revenue.. but the gov't prudently limits the supply and monitors the development...) Similar in Singapore.. The other biggest issue of concern for investors, is insecurity - will the laws change regarding ownership next month? next year? ?? etc. This is a serious problem and I am not sure if there is an answer.. Take for instance buying property in Batam - in the Free Trade Zone where foreigners can buy, (not the land of course) The gov't land leases went from 30 years to 20 years and now we hear that in a few months the land rental fee's will go up 400%.!
Investors need stability and security - irrespective of the sector. The perception is that laws can change very arbitrarily to the detriment of foreigners / investments.. (For years foreigners have waited for a change in the strata law - but - were deeply disappointed when it was announced, then re-announced with little in the way of providing any real security. - a red herring)