T

he issue of foreign property ownership has sparked a lot of discussions among many players and observers of the local property sector lately.

Many parties, especially developers, support the idea. This means that the government'€™s plan to allow foreigners to own high-end properties may come to pass. If the plan becomes a new regulation, the government will correspondingly have to revise the 1960 Agrarian Law, which stipulates that foreigners are not allowed to own freehold property and may only be granted leasehold title. For developers this would be a lucrative way of expanding their market segment. Some other parties, meanwhile, express their objections to the idea. Each side has its own arguments to back up its stance.

As a property consultant firm, Cushman & Wakefield believes that foreign property ownership would act as an economic generator, as it would boost related industries such as building material manufacturing, construction and hospitality, to name a few. To effectively yield its benefits, however, the rule needs to adhere to what the market demands.

The Jakarta Post'€™s Sebastian Partogi recently talked to Cushman & Wakefield vice chairman Handa Sulaiman to further explore the issue. Here is an excerpt from the interview:

Question: Foreign ownership seems to be a trending topic for Indonesia'€™s property sector lately. Can you elaborate your views as a property consultant regarding the issue?

Answer: The government is still deliberating the new regulation allowing foreigners and expatriates to own property, especially apartments. It, however, has not been published yet and the government hasn'€™t disseminated enough information about it to the public. It is still deliberating the price cap for foreign property ownership, is it Rp 5 billion (US$339,489) or Rp 10 billion? We are still monitoring the deliberation process.

Currently, foreigners are allowed to only hold leasehold title for condominiums and apartments. The market segment of properties worth more than Rp 5 billion cannot rely on just local buyers. The segment would be much stronger if we included foreign buyers.

Some parties, most notably the Indonesian Real Estate Association (REI), have voiced their support for the plan, arguing that the regulation will benefit Indonesia'€™s economy by, among other ways, boosting our foreign exchange reserves. Do you agree with this?

In my view, opening our property market to foreign ownership could bring several economic benefits. It could be our economic generator. First of all, it would increase tax collection; and second, it would create a multiplier effect by driving related sectors like building material manufacturing and construction services.

In order to effectively bring the abovementioned benefits, however, the foreign property ownership regulation needs to cater to market demand.

Can you elaborate on that?

For the deliberation of foreign property ownership, the government plans to allow only those who hold temporary stay permits (KITAS) to own property here in Indonesia.

Meanwhile, currently there are only around 70,000 foreigners who live in the entire country. Out of that figure, I assume that only 10 percent of them would be interested in buying property here because they mostly stay here only for a short span of time. Putting it briefly, the market size is not that big. In order to attract more foreigners to buy property here, I suggest that the government scrap the KITAS requirement.

Furthermore, foreigners who own property here need to be able to complete transactions quickly in cases where they want to buy or sell property.

Currently, with their leasehold title for property, banks are reluctant to finance foreigners seeking to purchase property before the latter obtain permission from the National Land Agency (BPN). They also need to obtain permission from the BPN first before they'€™re finally able to sell their property. Obtaining permission from the BPN requires a time-consuming process and this runs contrary to the market'€™s desire for free-flowing property ownership, which allows them to buy and sell property quickly.

Are the property price caps planned by the government for foreign owners realistic?

Unfortunately, so far there have been no research studies assessing the issue yet. For me, the Rp 5 billion cap might be quite realistic for expatriates who live here, because the price is covered by their purchasing power. But if the price is Rp 10 billion, some expatriates might not be willing to make a purchase although they have the means to do so, especially if they can'€™t sell it real quick.

Meanwhile, some bodies like such as housing association fear that foreign property ownership would be followed by steep price increases. Do you think that opening our property market to foreigners would lead to a property bubble?

Actually, the government has taken steps to prevent the possibility of steep price increases, for example, by limiting foreign property ownership to the purchase of apartments only. The Rp 5 billion price cap is also a good strategy as it confines the property to only upper-income foreign owners. However, as I'€™ve said before, the regulation needs to be perfect in adapting itself to the market. If not, it will not do any good.