Indonesia Property Market: What Foreigners Need To Know Before Investing

August 26, 2016 Indonesia

After years of prohibiting the foreign purchase of property, the Indonesia property market has finally opened itself to foreigners, particular those who legally reside in the country. This may be good news for any expat living in the country and perhaps any foreign real estate investor, the country has a long way to go before it completely welcomes a property investment coming from a residing foreigner. Before investing in an Indonesia property, there are a few things foreigners need to know.

Jakarta City | Indonesia Property Market | Real Estate | Expat living

City view of Jakarta, Indonesia

Foreign Ownership of Indonesian Properties

According to Indonesia Investments, a government has passed a regulation (Government Regulation No. 103/2015 on House Ownership of Foreigners Residing in Indonesia) that permits any expat living in Indonesia to own a landed house. A year before that, foreigners could only purchase luxury apartments. But today, as long as the foreigner is a legal resident of the country, he or she will be able to purchase a landed home or an Indonesia apartment.

No Mortgages for Non-Indonesians

Although this is a step in the right direction for the Indonesia property market, the government will still be enforcing strict regulation and control with regards to foreign ownership of property in Indonesia. An expat’s right to the purchase of property falls under the category of ‘right of use’ rather than ‘right of ownership’. ‘Right of ownership’ is a category that can only be given to Indonesian citizens. Because of this, it is next to impossible to obtain an overseas property loan from an Indonesian financial institution to finance a property investment. Although there is no law prohibiting local banks from selling expat mortgages, they still reject to sell them anyway to any property that falls under the ‘right to use’ category because of their prudent management.

Jakarta City | Indonesia Property Market | Real Estate | Expat living

Strict Regulations for Foreign Property Investment

Even with the regulation passed, foreigners will still need to adhere to strict requirements and rules for foreigners in the Indonesia property market.

Foreigners can only buy real estate property at a firm minimum price that the government has set for every region. Thus, expats in Jakarta will need to shell out a minimum of IDR 10 billion for a landed house and IDR 5 billion for an apartment. This is already an incredibly high real estate price. Along with the fact that they cannot obtain mortgages either, it will make it terribly difficult for the expat living in Indonesia to invest in local property. Perhaps this rule was even made for the purpose of discouraging foreign investment in the Indonesia property market in the first place.

Foreigners can also only make a property investment straight from the developer. They cannot transact with a middle man. They are also barred from renting out an Indonesia property to someone else. Any expat looking to make a bit of money in the real estate business by renting residential or commercial space will not be allowed.

When the expat also leaves Indonesia in order to become a resident in another country, he or she will be required to transfer the right of use to someone else who can meet all the requirements to own property within one year after leaving.

Small Steps towards the Right Direction

Due to the strict prohibitions, the Indonesian Real Estate Developers Association (REI) hopes that the government loosens both the strict requirements for foreign ownership and to make it easier for expats living in the country to obtain an overseas property loan. Even with the opening of the Indonesia property market to foreigners, it will only fail to attract buyers and therefore, fail to boost its real estate sector.

As of now, both the government and real estate developers seem uninterested in foreign property investments. They are focusing more on its domestic market as it takes up a bigger portion of its consumers. Also, developers of apartments usually develop the property under the ‘right-of-ownership’ category. If ever they were to develop the property under the ‘right of use’ category for the benefit of expats living in their country, there will be less local demand and therefore, less profit. However, if the government does nothing to attract foreign property investments, there will be no chance for the Indonesia property market to grow.

Even though Indonesia is not completely open to foreign property ownership yet, the change of regulations for the past couple of years is a step in the right direction. Perhaps in the near future, foreigners will be able to easily purchase real estate properties without the unnecessarily strict regulations. So should you purchase properties in Indonesia? If you fit the requirements and are willing to put up with the regulations, definitely go ahead. You can find our list of available properties in Jakarta here.

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