Changes to Indonesia’s foreign ownership of property could give it US$10b annual boost

Updated from : The Business Times4 August 2020

IT HAS been 15 years in the making, but the wait may well be worth it: the Indonesian government has finally tabled a draft law that will enable foreign investors to purchase and own property in the country with fewer restrictions.

These regulations are included in the Omnibus Bill, which aims to transform Indonesia’s economy by cutting red tape and improving the ease of doing business there.

Submitted to Parliament in February by President Joko Widodo, the Bill, which bundles multiple, unrelated areas of legislation that can be agreed to with a single vote, is critical to his vision of creating one of the world’s top five economies by 2045.

Property players and analysts say easing foreign ownership of Indonesian property would inject between US$5 billion and US$10 billion (between S$7 billion and S$14 billion) into the economy each year.

At a time when domestic investments are slowing significantly and the economy is expected to contract due to the Covid-19 pandemic, such strong capital inflows would be highly welcome.

Budhi Gozali, chief executive of IPDeS, Project Development & Acquisition, said: “If property ownership regulations are changed to make it easier for foreigners to own property in Indonesia, foreign investments in property could contribute to Indonesia’s overall economic growth.”

He told The Business Times: “Indonesia will enjoy a multiplier effect through increased tax revenues, jobs for contractors and construction workers and growth for building-material businesses; new jobs for the services industry, property sector and other related industries would be created with the new regulations.”

Michael Broomell, managing director for Colliers International Indonesia, said the changes have been anticipated, but had faced strong opposition from various groups. “But now, with the economic conditions so poor, there is an opportunity for such changes.

“With the changes, there would be a lot of people who would look at quality properties in Indonesia for investment,” he added. “There is currently a lot of vacancy in the office and apartment segments and developers would welcome foreign buyers.”

Foreigners are now allowed to lease Indonesian properties under existing regulations, but if the Omnibus Bill passes into law, it would make it possible for them to own strata-titled apartments and condominiums.

At the moment, foreigners are barred from buying and owning apartments under HGB (Right to Build) title; they can only own apartments and office space, but not the land on which the properties are built.

The long-term leases held by foreigners do not come with the same guarantees and protections that Indonesian citizens enjoy, making them harder to finance through bank mortgages.

Amri Mulya, programme director at the Jakarta Property Institute, said: “The government has realised that allowing foreigners to own properties with strata titles would provide stronger tenure and confidence. This is what the draft Omnibus Law is aiming to ratify.”

If the draft law is passed by Parliament with the changes in foreign ownership clause intact, both Mr Gozali and Mr Mulya expect certain regions in Indonesia to benefit from foreign investor interest. “Bali will be an interesting destination for foreign investors, followed by Jakarta, Batam and Lombok,” noted Mr Mulya.

He added: “A game changer would be to allow non-resident foreigners to purchase and own property in Indonesia. Such a change would be a huge boost to Bali, Batam and Lombok, as these are mostly tourist destinations and do not attract long-term stay foreigners.”

The changes in foreign property ownership regulations would enable foreign investors to invest in projects such as the Meisterstadt Batam, a mixed real estate development in Batam Centre, which was launched in 2016.

Bali could also have similar developments in the future, especially service apartments that cater to longterm tourists.

In the past, the government had been reluctant to allow foreign property ownership due to fears that property prices would rise too high, beyond the reach of the country’s middleand low-income families.

But Mr Gozali said this concern can be mitigated by ensuring that foreigners are allowed to buy only apartments, not landed property.

“I think the most important thing is for the government is to make sure that low-income and middle-income families can afford to buy landed homes, as having a home is considered as a basic need for shelter.”

With billions of dollars on the line, Indonesia’s property developers and players are anxiously waiting for Parliament to approve the draft Omnibus Law without significant changes.

President Joko has indicated that he would like deliberations to be wrapped up by the end of August and the law passed as soon as possible. The long wait for foreign investors may soon be over.