Foreign property buyers can soon venture into Indonesia

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Jakarta downtown_Arno Maierbrugger
High-rises in downtown Jakarta seen through the city’s notorious smog blanket. Foreigners will soon be allowed to purchase “luxury condominiums” in Indonesia which come with a hefty price tag, though. © Arno Maierbrugger

Foreigners and non-residents in Indonesia will soon be allowed to purchase and “own for lifetime” residential property, a new regulation that has been warmly welcomed by domestic developers and international real estate agents. The Indonesian government is about to finalise a respective legislation “as soon as possible” after the country’s president Joko Widodo approved the proposal in end-June.

At present, foreigners and expats are restricted from effectively owning any type of property in Indonesia as per a land law from 1960 which only grants a foreign buyer the right to use a property for a predefined purpose and amount of time, i.e. 25 years extendable by another 20 years. This rule will change, but, however, will come with a few essential limitations: Foreigners will be only allowed to buy “luxury apartments,” which are defined – as matters stand – as flats having a minimum appraised value of 5 billion rupiah (approximately $374,250 at current rates), and are located in high-rise buildings. Purchasing any other type of property such as landed houses or less expensive apartments remains prohibited, but a buyer will be free to choose the location of his flat, whereby such expensive apartments can only be found in certain upscale urban areas anyway, e.g. in parts of South Jakarta, where most expats in the Indonesian capital live.

Technically speaking, there will still be no right of ownership or freehold rights on the property. The right-to-use category will remain, but it will be changed into permanent and the foreign-owned property can then be resold and bequeathed. The new law is only aimed at foreign individuals though, companies will still have to lease their premises.

“The [upcoming] regulation will include details on ownership periods, requirements and rights and obligations of expatriates who will be granted the right to purchase and own property in Indonesia,” Indonesia’s Minister for Agrarian Affairs and Spatial Planning Ferry Mursyidan Baldan, whose ministry has been tasked to draft the new regulation, said at a recent press conference in Jakarta.

“The state will allow foreigners to own living spaces in Indonesia for as long as they live, and they’ll be able to trade the properties or pass them down to their children. [Ownership] is classified as right of use, though. It will not be freehold,” the minister added.

The Indonesian government through such a regulation expects more foreign currency inflow and increased tax income, while at the same time due to the comparably high minimum price level it is trying to avoid that foreigners go on a shopping spree and cause a property bubble to develop like it happened in Singapore or Hong Kong. It is also aiming at closing a loophole that currently enables foreigners to “own” property assets by using local persons as informal custodians. In general, the country also wants to improve the competitiveness of its property sector ahead of the upcoming ASEAN Economic Community, where namely Malaysia, Singapore, Thailand and the Philippines by lowering the entry barriers have developed a thriving property market for foreigners.

But there are also pitfalls in buying a luxury property in Indonesia even though the government is trying to make it appealing. For Indonesian standards and even for the upper middle class, the minimum price of 5 billion rupiah is extremely expensive which automatically eliminates large parts of the population as a target audience for a possible resale. And even if expat white collar workers in Indonesia might be rich for local standards, they are normally not as rich as to just fork out a hefty $374.250 minimum for a single apartment. This means that the new law will most likely attract wealthy foreign investors and possibly speculators from China, Japan, South Korea, Australia and the Middle East.

But these buyer group will be instantly exposed to Indonesia’s notoriously weak currency because – as per a regulation by Indonesia’s central bank which took effect on July 1, 2015 – the Indonesian rupiah must be used “for all cash or non-cash transactions” in the country in the future without exemption and offenders face a punishment of up to one year in prison or a fine of up to 200 million rupiah (approximately $15,000). And a look at both the property appreciation and the currency charts reveals: Even though prices for premium property at least in Jakarta’s better neighbourhoods have more than doubled since 2009, the currency has lost almost 45 per cent of its value versus the US dollar, dropping more than 15 per cent since July last year alone. This makes foreign property investment in Indonesia – especially at such high price levels – a quite uneven business for individuals who would need to see massive appreciation of their luxury units from an already high threshold and a liquid buyers’ market to make such a deal worthwhile in the long-run.

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Reading Time: 3 minutes

High-rises in downtown Jakarta seen through the city’s notorious smog blanket. Foreigners will soon be allowed to purchase “luxury condominiums” in Indonesia which come with a hefty price tag, though. © Arno Maierbrugger

Foreigners and non-residents in Indonesia will soon be allowed to purchase and “own for lifetime” residential property, a new regulation that has been warmly welcomed by domestic developers and international real estate agents. The Indonesian government is about to finalise a respective legislation “as soon as possible” after the country’s president Joko Widodo approved the proposal in end-June.

Reading Time: 3 minutes

Jakarta downtown_Arno Maierbrugger
High-rises in downtown Jakarta seen through the city’s notorious smog blanket. Foreigners will soon be allowed to purchase “luxury condominiums” in Indonesia which come with a hefty price tag, though. © Arno Maierbrugger

Foreigners and non-residents in Indonesia will soon be allowed to purchase and “own for lifetime” residential property, a new regulation that has been warmly welcomed by domestic developers and international real estate agents. The Indonesian government is about to finalise a respective legislation “as soon as possible” after the country’s president Joko Widodo approved the proposal in end-June.

At present, foreigners and expats are restricted from effectively owning any type of property in Indonesia as per a land law from 1960 which only grants a foreign buyer the right to use a property for a predefined purpose and amount of time, i.e. 25 years extendable by another 20 years. This rule will change, but, however, will come with a few essential limitations: Foreigners will be only allowed to buy “luxury apartments,” which are defined – as matters stand – as flats having a minimum appraised value of 5 billion rupiah (approximately $374,250 at current rates), and are located in high-rise buildings. Purchasing any other type of property such as landed houses or less expensive apartments remains prohibited, but a buyer will be free to choose the location of his flat, whereby such expensive apartments can only be found in certain upscale urban areas anyway, e.g. in parts of South Jakarta, where most expats in the Indonesian capital live.

Technically speaking, there will still be no right of ownership or freehold rights on the property. The right-to-use category will remain, but it will be changed into permanent and the foreign-owned property can then be resold and bequeathed. The new law is only aimed at foreign individuals though, companies will still have to lease their premises.

“The [upcoming] regulation will include details on ownership periods, requirements and rights and obligations of expatriates who will be granted the right to purchase and own property in Indonesia,” Indonesia’s Minister for Agrarian Affairs and Spatial Planning Ferry Mursyidan Baldan, whose ministry has been tasked to draft the new regulation, said at a recent press conference in Jakarta.

“The state will allow foreigners to own living spaces in Indonesia for as long as they live, and they’ll be able to trade the properties or pass them down to their children. [Ownership] is classified as right of use, though. It will not be freehold,” the minister added.

The Indonesian government through such a regulation expects more foreign currency inflow and increased tax income, while at the same time due to the comparably high minimum price level it is trying to avoid that foreigners go on a shopping spree and cause a property bubble to develop like it happened in Singapore or Hong Kong. It is also aiming at closing a loophole that currently enables foreigners to “own” property assets by using local persons as informal custodians. In general, the country also wants to improve the competitiveness of its property sector ahead of the upcoming ASEAN Economic Community, where namely Malaysia, Singapore, Thailand and the Philippines by lowering the entry barriers have developed a thriving property market for foreigners.

But there are also pitfalls in buying a luxury property in Indonesia even though the government is trying to make it appealing. For Indonesian standards and even for the upper middle class, the minimum price of 5 billion rupiah is extremely expensive which automatically eliminates large parts of the population as a target audience for a possible resale. And even if expat white collar workers in Indonesia might be rich for local standards, they are normally not as rich as to just fork out a hefty $374.250 minimum for a single apartment. This means that the new law will most likely attract wealthy foreign investors and possibly speculators from China, Japan, South Korea, Australia and the Middle East.

But these buyer group will be instantly exposed to Indonesia’s notoriously weak currency because – as per a regulation by Indonesia’s central bank which took effect on July 1, 2015 – the Indonesian rupiah must be used “for all cash or non-cash transactions” in the country in the future without exemption and offenders face a punishment of up to one year in prison or a fine of up to 200 million rupiah (approximately $15,000). And a look at both the property appreciation and the currency charts reveals: Even though prices for premium property at least in Jakarta’s better neighbourhoods have more than doubled since 2009, the currency has lost almost 45 per cent of its value versus the US dollar, dropping more than 15 per cent since July last year alone. This makes foreign property investment in Indonesia – especially at such high price levels – a quite uneven business for individuals who would need to see massive appreciation of their luxury units from an already high threshold and a liquid buyers’ market to make such a deal worthwhile in the long-run.

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