26 June 2015 | Indonesia Investments
Subjects | Government Regulation No. 41/1996 on Housing for Foreigners Residing in Indonesia, Foreign Ownership Property Indonesia, Bambang Brodjonegoro, Apartments, Property, Real Estate
Several days ago Indonesian Finance Minister Bambang Brodjonegoro announced that the government may soon allow foreigners to own luxurious apartments in the bigger cities of Indonesia. His ministry is currently focused on revising Government Regulation No. 41/1996 on Housing for Foreigners Residing in Indonesia which still forbids foreigners (expats) owning any type of property in Indonesia. Indonesian property developers have warmly welcomed the new plan of the government as it brings more opportunities to the property sector.
After amendment of Government Regulation No. 41/1996, which is expected to be completed as soon as possible, expats will be allowed to own luxurious apartments (and not any other type of property such as landed houses) that have a minimum value of IDR 5 billion (approximately USD $375,939). For Indonesian standards this minimum price is currently indeed extremely expensive and therefore this policy change will not affect Indonesia’s middle class (as they will not have to compete with foreign buyers). An Indonesian middle class married couple would be capable of purchasing property with a maximum value of about IDR 3 billion (USD $225,563). Any higher than that then we regard the buyer as belonging to the elite of society. Moreover, if foreigners would be allowed to own any type of property then there would be the real threat of a property bubble rising in Indonesia within a couple of years.
The Indonesian government wants to allow foreigners owning property in Indonesia (luxurious apartments) in order to generate more tax income as well as to boost Indonesia’s property sector which has shown sluggish growth in the past two years as the country’s economic slowdown (including the country’s relatively high interest rate environment) has limited people’s purchasing power. Indonesian property developers responded positively to this plan as the new regulation would help to expand the market, while these developers also need to focus on international developments and standards to attract foreign buyers. Some claim it could boost growth in the domestic property sector by 20 percent and will have a multiplier effect on other industries closely related to property such as cement, ceramics as well as the construction work force. However, those domestic property developers that currently focus on the construction of luxurious apartments (> IDR 5 billion) are relatively few. But, as property prices in Indonesia have risen sharply over the past couple of years, there is the chance that within the timespan of a decade (provided that Indonesia’s economic growth is back on track) apartments with a minimum value of IDR 5 billion are not that few anymore.
The regulation to allow foreigners to own luxurious apartments in Indonesia is also in line with the goals of the ASEAN Economic Community (AEC) which is to commence at the end of the year. The AEC is to transform the ASEAN region into a region with a free movement of goods, services, investment, skilled labour, and a freer flow of capital.