Why confusion reigns over Indonesia’s foreign property rules

Wednesday, August 19th, 2015


Overseas property professionals and buyers have been encouraged by press reports suggesting that Indonesia is considering removing the current price restriction limits on foreign buyers.

The media quoted minister of land and spatial planning Ferry Mursyidan Baldan, saying the Indonesian government will not set a minimum value on homes that foreigners could buy as long as they were not state-subsidized dwellings. Previously, it was proposed that overseas buyers would only be allowed to purchase property at Rp5billion ($373,500) or above. “I don’t think we need to have that minimum value,” the Jakarta Mail reported the minister as saying.

But the situation may not be as simple as it seems. When OPP.Today asked Hasan Pamudji, of Knight Frank, Indonesia, if the ‘no limit’ proposal was likely to be adopted, he was cautious. He says there is no certainty of the proposal coming to pass and that the comments have created confusion for buyers and officials.

“In the past few months, it has been talks or rumours said generally by the Indonesian ministers or officials regarding the potential revision on the foreign property ownership regulation. It also has created confusion among the officials themselves and the general public.  Whether the no limit proposal likely to be implemented, it remains in question. There is no certainty.

“All in all, it is a good start for the Indonesia’s property market, giving more positive news. However, there are no clear indications of what the revised regulations would be specifically. It is difficult to judge at this moment as it can change anytime.”

Demand is currently highest from buyers in Australia, France, Singapore, Japan, China, South Korea, USA, Hong Kong, Malaysia and other countries. Indonesian destinations that already have high overseas visitor numbers are likely to benefit from any freeing up of purchase regulations, he says.

“Demand for property in Indonesia from foreigners has been quite strong. However, it is subject to several factors. If the revised relaxed policy comes into effect, the potential new demand would not be so robust.  In addition, Bali, Batam and Bintan may get the benefit of the revised rules as these places have been attracting more foreigners in the past years.

“The first question to ask is why and for what purpose the Indonesian government is opening up to foreigners the ownership of properties in Indonesia. Positive motivations could be to boost revenues and be good for the domestic economy as well as relationships with other countries.

“There may be two types of foreign buyers. The first buyers are foreigners who have strong attachments with Indonesia such as through marriages with Indonesians, relatives, works, businesses and other reasons. This type of people may buy properties under revised rules due to necessity, needs and social attachment with Indonesia despite high transaction costs. Though, these people now may have already owned properties in Indonesia through nominees, marriages and PMA (Foreign Investment Company).

“The second type of buyers is rich individuals who want to invest or buy as second home buyers. These buyers may not want to invest as the transaction costs are very high. Other countries may provide more appealing investment terms. Also, other than Bali, Batam, Bintan, Lombok and other popular resort islands for foreigners, other areas may not receive strong demand.”

There are several important factors to be considered in any regulations, concerning what foreign investors and buyers are looking for, including transparency and certainty in ownership regulations, Mr Pamudji says.

1)    A permit to stay – is it easy to process and obtain?

2)    Land right status (freehold, leasehold, etc.)

3)    What length of terms can be given for those land rights

4)    Any additional property taxes imposed for foreigners.

“All in all, are these competitive enough to be appealing for foreign investors as compared to other neighboring countries?

The criteria for High-Net Worth Individuals to invest in second-homes in Indonesian destinations considered true ‘Global Cities’ should also be decided. Other examples around the world are Singapore, New York, London, Hong Kong, Sydney, Paris, Shanghai, Beijing, Miami, Geneva, Berlin, etc.

How is a Global City defined? he asks?

  • Economy. Including economic output, income per head, financial and capital market activity and market share, together with the number of international business headquarters in each city.
  • Politics. Political stability, the number of headquarters for national political and international non-governmental organisations, along with the number of embassies and think-tanks in each city.
  • Quality of life. Ratings are calculated based on several measures including personal and political freedom, censorship, personal security, crime, political stability, health facilities, public services and transport, culture and leisure, climate and the quality of the natural and man-made environment.
  • Knowledge and influence. Consideration based on each city’s knowledge base — assessing the number of national and international media organizations and news bureau, and the international market share of locally based media.

“Other issues such as political, social, economy may influence the outcome of passing the revised regulation. Those are quite complex issues and may invite strong oppositions from local people. Concerns of property bubble and affordability for locals beyond reach remain strong.”

In addition, overseas property demand has suffered due to the imposed additional luxury tax for locals, he says, which could drive buyers to purchase properties in Singapore, Australia, Malaysia, and other areas where the cost is lower, Mr Pamudji points out.

“The property market is currently undergoing the consolidation period and is under pressure due to global and domestic economic slowdown, currency depreciation and high interest rates as well as rising inflation.

“Buyers are more cautious and play a wait and see game until there is a clear sign where property prices and the domestic and global economy are heading, which is not expected until end of this year. Uncertainties remain high. Meanwhile, infrastructure development efforts are still lacking or are minimal from the government side.”

© OPP Ventures 2014

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