Foreign ownership urged: Kelapa Gading Square Apartment in North Jakarta is one of the properties that is highly attractive to residence seekers and property investors. Calls have grown from property business players for changes to regulations on foreign ownership of property as this will help revive the property business. JP/Anthony Dea
Relaxing regulations on foreign ownership of property could give a boost to the property sector, and help curb unemployment as apartments are definitely a property product that is attractive to foreigners.
Unfortunately the government has not taken concrete measures to improve the regulation on the rights of foreign ownership of property.
Legislative member Enggartiasto Lukito, who is also the former chairman of Real Estate Indonesia, said that the government needed to deal with the impact of free trade by enhancing sectors that could provide job opportunities, like property. An apartment project, for example, could provide jobs for hundreds of people, from construction workers to administration and marketing staff. This does not include people from the supporting industries like the tile makers, those excavating sand and stones and food vendors around the project.
“If the policy on the rights of foreign ownership of property is improved, I think this year developers will build dozens of apartment and office building projects. Millions of jobs would be offered and the negative impact of possible mass lay-offs could be mitigated,” he said.
President director of PT Bakrieland Development Tbk Hiramsyah S Thaib said there were 83,452 foreign workers who were potential apartment buyers in Indonesia. The number could be higher, as he estimated that another 10,000 foreigners who did not work in Indonesia might want to buy properties in the country as an investment.
“If the revised regulation on foreign ownership is issued, foreigners will have a greater interest in buying property assets in Indonesia,” he said.
Both Hiramsyah and Enggartiasto said they did not understand why the government did not support the improvement of the regulation on foreign ownership of property considering that what would be sold to the foreigners were buildings on common land, which could not be taken away from Indonesia.
Improve the regulation on foreign ownership of properties. That is the hot issue being discussed by property tycoons. According to Real Estate Indonesia chairman Teguh Satria the 1996 government regulation on the ownership of houses or residences by foreigners in Indonesia is no longer appropriate.
The regulation, which still applies today, does not accommodate the interests of property businessmen. Worse, it makes the property market in Indonesia not as competitive as markets in other Southeast Asian countries.
Citing an example, Teguh said that Article 6 restricts the right of a foreigner to use a building to only 25 years, which can be extended three times up to 75 years. “For the sake of time effectiveness, the policy obliging the extension must be revoked. So far, almost 100 percent of applications for land use right extensions are approved. So, why should people apply for an extension every 25 years?” he said as quoted by Gatra magazine (Dec. 24, 2009).
But what’s clear, said Teguh, is the opening of the property market for foreigners could actually deal with the gap between the supply of residences in the upper market segment and those in the lower level, if clear rules were applied. Big developers who so far sell their residences to foreigners should be obliged to build residences for the lower level as compensation.
The need to revise the regulation on foreign ownership for property is urgent. The past year has seen a slack market for condominiums for the upper and premium segment of Rp 2 billion per unit. The supply and demand for luxury condominiums is no longer balanced, requiring a new market which is fresher: the expatriate market.
Real Estate Indonesia data shows that the trend in the condominium market keeps declining from year to year. The market of condominiums in Jakarta with the price of more than Rp 500 million each is weakening so that the absorption is not as good as during the period of 2004-2005, when an average of 11,000 units were sold per year.
“If the foreign market is not opened, the performance of national developers, especially those in Jakarta, will drop despite the fact that the property sector provides a significant contribution to economic growth,” he said.
The government has responded to the demand to improve the regulation on the foreign ownership of property. According to State Minister for Public Housing Suharso Monoarfa property ownership by foreigners should be in accordance with stipulated rules and regulations so that it would not create problems in the future. He said it should be clear whether the foreigners planned to buy properties because they wanted to live here or only for investment.
The government reportedly will apply the Australian system, where foreigners can only buy new properties. If they leave Indonesia, they should sell them to locals. This stipulation will boost the property business in Indonesia, giving a new opportunity for developers to build houses or apartments.
As for the term of ownership for foreigners, this remains a topic of discussion among government institutions. “Some suggested 70 years, some demanded 90 years. However, there were also others who said that that it should be 50 or 55 years at the longest.”
The prolonged debate continues, but property businessmen hope it will be resolved by mid year, especially because property is an important sector in the country’s economy. In fact, even during the current sluggish economic conditions due to the recent global crisis, the property industry demonstrated positive growth. Even though the prices increased, there were many buyers. The purchase of property for investment is also optimal. It can be said that the business, interest rate and inflation risks in the property sector are quite low compared to obligation deposits and the stock exchange, for example.
Chief researcher of Jones Lang LaSalle Indonesia, Anton Sitorus, is positive that the improvement in the regulation on foreign ownership will make investment in Indonesia more interesting.
“Foreigners will have more interested in property projects in Indonesia. What’s more, the price of property in Indonesia is not as expensive as in neighboring countries,” he said.
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