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A range of views on foreign property ownership
Despite its lucrative outlook, the pros and cons of property ownership by foreigners is still being weighed up by practitioners
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Despite its lucrative outlook, the pros and cons of property ownership by foreigners is still being weighed up by practitioners.
The government's plan to issue a new policy regarding the right to own property by expatriates has become a full-blown debate. The policy is intended, among other reasons, to draw in revenue from expatriates living and working in the country. The market potential for foreign property ownership is big, as the price of property in the country is still deemed relatively low compared to that in Singapore or Malaysia, for example.
Another reason is to help improve the property market in Indonesia. The economic slowdown and the volatility of the rupiah against the US dollar have put pressure on the property sector in the country, so the new policy has found proponents in national property developers. The marketing director of Capitol Park Residence, Raisa Widjaja, for example, said the policy was a step in the right direction although the policy needed to be observed rigidly.
'This is a good policy, but there should be clear regulations to avoid loopholes,' she said.
Old practice renewed
Today expatriates can actually hold on to property in Indonesia through right to use, leasehold or right to cultivate. Property player and former chairman of the Indonesian Real Estate Association (REI) Setyo Maharso says that between 30 and 40 percent of properties in Bali are owned by foreigners, as quoted from the Indonesian Property Watch web portal. They may not own the properties directly under their names, as there is no law which permits them to do so; but many of them are married to Indonesians, thus, enabling them to purchase property.
President of the Hud Institute, Zulfi S. Koto said it would be advisable to change the term ownership to tenancy, as expatriates purchasing properties in Indonesia do not own the land. This is also related to the distinction between land and house ownership as stated in the law. The prevailing policy regarding the ownership of property for expatriates stipulates foreigners may own a property under certain terms and conditions, including their length of stay in the country and their having a permanent job. Another condition is that they can only purchase a vertical residential or apartment.
Concern over growing gap
Those who voice concerns regarding the new policy include secretary general of the Consortium for Agrarian Reform (KPA) Iwan Nurdin. He says the time is not appropriate for such a regulation.
'The government needs to anticipate the rising price of property as a direct consequence of the new policy. If there is a big demand [for property] by expatriates, it will boost the price of houses of lower classifications,' he said as quoted in Kompas.com.
Setyo shared the same concern. He said with more foreigners coming to the country to purchase property, the value of property would jump, considering the high purchasing power of foreigners and the relatively low cost of property in Indonesia. The government should be wary of a property bubble effect that may follow the property-buying trend among expatriates. Even the country's central bank, Bank Indonesia has this concern. In countries that have experienced property bubbles bursting, often the property value doubled or tripled as a result of foreign purchasing of property. The crash happens when the country experiences a crisis or economic slowdown, causing property values to dip and the market to almost collapse. This is the reason why the property market in Indonesia could still grow when those in Europe and in America suffered: The Indonesian property sector is still dominated by local buyers.
That's why the challengers of the policy ask the government to prepare limiting clauses that can protect the local market. Limiting the area and the number of purchases can provide balances between the expatriate market and the national market they argue. Ibnu Tadjil of the Housing Flat Resident Group Association criticized the plan saying it might threaten national security and widen social gaps. Developers are reminded of their obligation to allocate 20 percent of their development area for apartments for low-income members of society. This may act as a buffer to the widening social gap in urban areas. However, president of FIABCI for ASPAC, Teguh Satria voiced his concern about this obligation. He said property ownership by expatriates should not be interconnected with the availability of housing for low-income members of society. He said the government was the body responsible for providing housing for low-income people.
However, the KPA's Iwan stated the government needed to expand its housing-for-the-people program. He said the government's citing Singapore, Malaysia and Australia as examples of countries that let foreigners own property was not entirely appropriate. Iwan pointed out that the three countries had a good policy regarding housing for their people. The three countries have high levels of housing ownership among their people. 'Government should guarantee that Indonesians can own their homes before letting foreigners own theirs in Indonesia,' he said.
He added that expatriates who owned a house in Indonesia should pay a steep price, just like they do in Malaysia, Singapore and Australia. This would be to ensure that only well-heeled foreigners would purchase a property, as they are the ones with strong purchasing power and who will pay heavy taxes.
High market growth
Jones Lang LaSalle (JLL) recently released data regarding the increase of ownership of luxury residences in Jakarta. The data shows that in the second quarter of this year there was an increase of 4.2 percent in luxury residence ownership.
Head of advisory data research at JLL Vivin Harsanto said the opportunity to own property by foreigners should not significantly affect the demand in the luxury residence segment.
'Of course, there will be an effect, but it should not be too significant. The biggest market is still the middle level and mid-to-low level. For the upper-income level, the market is not really big,' she said. (JP)
