"Proposed changes to property ownership laws for foreigners: Mixed messages are still coming in regarding the government’s intentions with possible changes to the property ownership laws for foreigners. One recent report indicated that the government wants to make Indonesia more attractive for foreigners to retire and are therefore considering allowing foreigners aged 55 years or older [retirees] to be able to purchase property here. However because with every ‘pro’ there needs to be a ‘con’, the eligible foreigners will only be able to borrow up to 50% of the properties [sic] value and the loan must mature in a maximum of three years. Hmmm.. " -- Article from What's New Jakarta
This seems very and overly restrictive and also raises the following questions:
1) What is the definition of an "eligible" foreigner ?
2) The 50% Loan to Value (LTV) ratio applies where the property land records reflect a "deed of trust" loan or mortgage on the property. What if the financing is obtained outside of Indonesia ?
To require that the mortgage loan term be a maximum of three years means that if financed in Indonesia, the banks will make far less money in interest than if the mortgage loan was for the typical 15 year (180 months) or 30 year (360 months) loan period typical of real estate financing in the US. Furthermore, mortgage interest can generally be an itemized Federal income tax deduction on IRS Schedule A, so by only having a 3 year loan period this also makes the prospects for a [US] foreigner less likely to buy property in Indonesia since they cannot "write off" or deduct mortgage interest from their gross income thereby lowering their final or overall net taxable income. This will definitely not serve to stimulate the Indonesia economy by making it overly restrictive and financially burdensome for a retired person [over 55 years of age] on a pension or fixed income to take out a 3 years mortgage loan on a second or vacation home or investment property; not unless of course the elderly retired person was very wealthy. This would be a highly counter-intuitive move by the Indonesian Government to even consider such a measure.
The US imposes a "FIRPTA" (Foreign Investment Real Property Tax Act) which basically works like this. A foreigner can own US real property; however, if they ever sell it or plan on "cashing out" on the appreciation of an investment property; not only will they be subject to Capital Gains taxes (unless a "1031 tax exchange" is done), but will also be subject to the FIRPTA tax at closing or settlement on the sale of the property as well. The underlying philosophy behind this is the US says, "sure you can come here and buy and own property here, but if you plan on "cashing out" and running back to your country with the money you made here in the US, then "Uncle Sam" and the IRS is going to take their cut first. Indo could do something similar...
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