http://www.deplu.go.id/washington/Pages/Embassies.aspx?IDP=51&l=id
"Foreign Property Ownership to be Extended to 70 Years"
Kamis, 28 Januari 2010
TEMPO Interactive, Jakarta:
Foreign property ownership will be extended from 25 years to 70 years. “The regulations formulation is completed. It only waits for the Housing Minister stamp,” said Lucy Rumantir, Jones Lang LaSalle Indonesia Chairman, in a press conference at the Nikko Hotel in Jakarta, yesterday.
Lucy, who is also the Permanent Committee Head of Property Services for the Indonesian Chamber of Commerce and Industry (Kadin), is one member of the team who formulated Government Regulation (PP) No. 41/1996. Under this regulation, foreigners could only own a house for 25 years. According to Lucy, Indonesian properties occupancy rates are not optimal yet because of the government limitation. Under this PP, foreigners can only own a home or flat built on land with a right to use (Hak Pakai) certificate.
Foreigners complained that while Indonesians could easily own houses abroad, but it is difficult for them to get houses in Indonesia. Whereas regulations on property ownership in other big cities in the world was easier.
She cited that in Australia, foreigners could own a house just by having a passport. But they could only buy new houses.
“Later, step by step, we will formulate a regulation to allow right to use land become
right to build land (Hak Guna Bangunan),” said Lucy. Besides that, to smooth out foreign property ownership, the revision includes limitations.“For example, foreigners could only own properties above Rp1.5 billion,” she said.
Lucy added that if more foreigners buy properties in Indonesia, state revenues will increase. According to her notes, the number of foreigners in Indonesia is 83,000 people. If just one percent of them buy properties, this translate to 800 people. “800 times Rp1.5 billion, it’s quite a big revenue for Indonesia,” she said.
That does not include other impacts. If demand is higher, property development will also increase. “From there, demand for curtains and furniture will increase,” said Lucy. This means that other industries, such as textile and furniture, will also grow.
TEMPO Interactive - Eka Utami Aprilia | ANTON WILLIAM
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My Commentary and Analysis:
The recent changes and proposed amendments to the real property laws as they relate to foreign "owners" or investors acquiring real property here in Indonesia remain overly restrictive and counter-intuitive, and fall short of significant changes or measures to stimulate the Indonesian economy for the following reasons:
1) a foreigner cannot truly "buy" or "own" a real property here in Indonesia in a freehold estate form of property ownership (Hak Milik); they are only given a leasehold estate or "right to use" (Hak Pakai) and for a finite period, now extended from 25 to 75 years. And there are other strings attached as well that "Lucy" has not told you about...
2) The "1.5 Billion Indonesian Rupiah (IDR)" that is the threshold or MINIMUM property sales price that a foreigner can "purchase" a right to use leasehold estate for a number of years (and not true, absolute and unrestricted ownership as in a freehold estate or in fee simple) equates to $168,388 USD as the minimum "purchase" price.
By western standards and US property values, this does not seem like much on its face, or may even sound relatively low; however the operative word here is RELATIVE. When you look at what single family detached, attached row house or townhouse, or condominium ("Strata Title") properties go for here in Indonesia or in the greater Jakarta metro area, you will discover that this "1.5 Billion IDR" minimum sales price means that you must actually purchase a property in the upper end of the spectrum. For example, where I live in Sentul City you can get a decent single family home with 2+ bedrooms, 2+ full baths for anywhere between $30,000 - 100,000 USD. (See recent active property listing examples below)
3) By requiring a foreigner to "buy" a property in the upper price range of homes, this eliminates certain investment opportunities and appeal for a foreigner or expat to buy a low to mid priced property (or ideally several of them) which are distressed, foreclosure, auction, tear down and rebuild type of properties; or an economically priced updated, upgraded or remodeled home that is in "turn key" condition and ready to occupy or rent out.
4) Additionally, if financing is obtained here in Indonesia, I understand that the lender will require a minimum of 20% down payment AND only finance it for 10-15 years (as opposed to "first time home buyer", FHA, or 30 year mortgages as we have in the U.S.). The prevailing interest rate is somewhere around 12-15% I believe for real property financing here in the Jakarta area. So, lets' do some math on that 1.5 Billion IDR minimum purchase price home for a foreigner or expat using these parameters.
a. 1.5 Billion IDR (1,500,000,000) = $168,388 USD
b. $168,388 X 20% down payment = $33,677
c. $168,388 - $33,677 (down payment) = $134,711 amount financed
d. monthly payments (principal and interest) for financing $134,711 for 15 years @ 12% =
$1,617 USD
There was also at one point back in June 2010 an article which reported on the proposed intentions of Indonesian government officials to allow or limit foreign ownership to retirees (aged 55 or older) BUT require then to finance no more than 50% of the value of the property AND pay off the mortgage financing within 3 years ! If this ever comes to fruition, then the numbers in my above example SIGNIFICANTLY worsen as LTV (loan to value) ratio down payment amount jumps up and the financing period or term shortens drastically. See my previous article commentary regarding this. The good news in this scenario is that there would be less risk for any creditor/lender, and that the debtor/borrower will have the mortgage paid off really fast, but the bad news is that for the short duration of the mortgage loan, the debtor/borrower will be cash strapped and cannot use the liquidity of funds otherwise available for other investments as a substantial sum of money has been "parked" into only one investment property or bucket.
There was also at one point back in June 2010 an article which reported on the proposed intentions of Indonesian government officials to allow or limit foreign ownership to retirees (aged 55 or older) BUT require then to finance no more than 50% of the value of the property AND pay off the mortgage financing within 3 years ! If this ever comes to fruition, then the numbers in my above example SIGNIFICANTLY worsen as LTV (loan to value) ratio down payment amount jumps up and the financing period or term shortens drastically. See my previous article commentary regarding this. The good news in this scenario is that there would be less risk for any creditor/lender, and that the debtor/borrower will have the mortgage paid off really fast, but the bad news is that for the short duration of the mortgage loan, the debtor/borrower will be cash strapped and cannot use the liquidity of funds otherwise available for other investments as a substantial sum of money has been "parked" into only one investment property or bucket.
5) As you can see in my example above, this is not necessarily an attractive way to encourage foreigners or expats to invest in Indonesia by "purchasing" or "buying" a leasehold estate (Hak Pakai) on a second home, vacation property, or investment property that is priced in the relative mid to high end of the housing market price bracket in Indonesia.
6) Furthermore, if the Indonesian property laws only allow an expat who is "domicled" in Indonesia or who has a PR or other immigration status to "own" only one owner-occupied principle residence; then this does not allow for multiple or concurrent "ownership" of 2 or more investment properties - thus stifling a potential investment portfolio in real estate properties in Indonesia.
7) If the goal or objective of the Indonesian land and property laws is to govern or restrict foreigners' property rights only where a foreigner is deemed to be "beneficial to national development"- how can you achieve this objective by tying the foreign investors hands behind his back where he cannot reach into his pockets either at all, or further, and spend money here in Indonesia on "national development" ??!! As Mr. Spok from Star Trek would say, "that is highly illogical"
6) Furthermore, if the Indonesian property laws only allow an expat who is "domicled" in Indonesia or who has a PR or other immigration status to "own" only one owner-occupied principle residence; then this does not allow for multiple or concurrent "ownership" of 2 or more investment properties - thus stifling a potential investment portfolio in real estate properties in Indonesia.
7) If the goal or objective of the Indonesian land and property laws is to govern or restrict foreigners' property rights only where a foreigner is deemed to be "beneficial to national development"- how can you achieve this objective by tying the foreign investors hands behind his back where he cannot reach into his pockets either at all, or further, and spend money here in Indonesia on "national development" ??!! As Mr. Spok from Star Trek would say, "that is highly illogical"
8) Conclusion:
Legislation must be adopted which allows a foreigner to:
a) Truly OWN a real estate property here in Indonesia in fee simple or a freehold estate (Hak
Milik), and not merely a right to use leasehold estate for a number of years which cannot be
passed or transferred to an heir.
b) Lower the minimum purchase price to attract a larger pool of buyers or investors,
c) Not impose restrictions on financing such as huge down payment requirements and very
short financing term, which all make the proposition of acquiring real property in Indonesia
cost prohibitive and financially unattractive, let alone the mortgage payments excessively
high. Banks or financial institutions make money by lending money; the longer the terms, the
more money financed - the more the banks can make. Once again, requiring huge down
payments and short financing terms is in essence the banks or government regulators
"cutting their noses off to spite their faces" - Mr. Spok would once again opine, "that is highly
illogical..."
d) Not limit property ownership (in Hak Milik) to only retirees (age 55 or older) or only someone
with a "PR" (permanent resident) immigration status, nor require an absentee owner/investor
to come back to Indonesia each year for 2 weeks.
e) For Indonesian government officials to not have xenophobia (fear of foreigners). Don't worry,
foreigners will not take over Indonesia or invade your country; and if they do, it will only bring
positive change or influence and not worsen the economic, political or social conditions that
currently exist.
1. There has been a proliferation of fraud and corruption in the dubious expat real estate
business in Bali due to the ubiquitous circumvention of Indonesian land laws and the
capitalization or predatory practices of unethical and highly unscrupulous expat tourism
trade businesses. Also, I am told that Bali seems to attract a certain "criminal element"
of people who are fugitives from justice in their own countries and "on the lam" and seem
to find a safe haven in Bali because of local law enforcement officials failure to check
INTERPOL or conduct "due diligence" in the immigration process which is also known to
be corrupt. Regrettably, this has given the expat real estate trade a bad name or image.
Easing the restrictions on foreigners or expats being able to legally buy real property in
Indonesia will also serve to mitigate the propagation of corruption and fraud in real
property sales and lease transactions. (see this link for an example of what I am
referring to here, http://www.nasty-bali.org/expatriates.html)
Absent such measures, and a more investor-friendly and simplified approach, as I propose above; Indonesia will NOT see any notable stimulation in their economy brought about by foreigners legally "buying" real property here and there will be no "beneficial national development." As I have said in previous blog articles, Indonesia's property laws as they relate to foreign investors [remain] OVERLY RESTRICTIVE AND COUNTER-INTUITIVE !
a) Truly OWN a real estate property here in Indonesia in fee simple or a freehold estate (Hak
Milik), and not merely a right to use leasehold estate for a number of years which cannot be
passed or transferred to an heir.
b) Lower the minimum purchase price to attract a larger pool of buyers or investors,
c) Not impose restrictions on financing such as huge down payment requirements and very
short financing term, which all make the proposition of acquiring real property in Indonesia
cost prohibitive and financially unattractive, let alone the mortgage payments excessively
high. Banks or financial institutions make money by lending money; the longer the terms, the
more money financed - the more the banks can make. Once again, requiring huge down
payments and short financing terms is in essence the banks or government regulators
"cutting their noses off to spite their faces" - Mr. Spok would once again opine, "that is highly
illogical..."
d) Not limit property ownership (in Hak Milik) to only retirees (age 55 or older) or only someone
with a "PR" (permanent resident) immigration status, nor require an absentee owner/investor
to come back to Indonesia each year for 2 weeks.
e) For Indonesian government officials to not have xenophobia (fear of foreigners). Don't worry,
foreigners will not take over Indonesia or invade your country; and if they do, it will only bring
positive change or influence and not worsen the economic, political or social conditions that
currently exist.
1. There has been a proliferation of fraud and corruption in the dubious expat real estate
business in Bali due to the ubiquitous circumvention of Indonesian land laws and the
capitalization or predatory practices of unethical and highly unscrupulous expat tourism
trade businesses. Also, I am told that Bali seems to attract a certain "criminal element"
of people who are fugitives from justice in their own countries and "on the lam" and seem
to find a safe haven in Bali because of local law enforcement officials failure to check
INTERPOL or conduct "due diligence" in the immigration process which is also known to
be corrupt. Regrettably, this has given the expat real estate trade a bad name or image.
Easing the restrictions on foreigners or expats being able to legally buy real property in
Indonesia will also serve to mitigate the propagation of corruption and fraud in real
property sales and lease transactions. (see this link for an example of what I am
referring to here, http://www.nasty-bali.org/expatriates.html)
Absent such measures, and a more investor-friendly and simplified approach, as I propose above; Indonesia will NOT see any notable stimulation in their economy brought about by foreigners legally "buying" real property here and there will be no "beneficial national development." As I have said in previous blog articles, Indonesia's property laws as they relate to foreign investors [remain] OVERLY RESTRICTIVE AND COUNTER-INTUITIVE !
(Sentul City / England Park subdivision - asking price $63,888 USD)
(Sentul City / Taman Andalusia subdivision - asking price $77,222 USD)
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