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Omnibus law could help bolster Indonesian property market
Foreigners with work permits are now allowed to own apartments on a strata-tile basis and this is expected to boost the luxury apartment market which target expatriates.
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even months after the outbreak of the first COVID-19 case was announced, the impact on Indonesia’s economy has worsened with second quarter gross domestic product (GDP) growth falling to minus 5.32 percent year-on-year. With the number of cases now surpassing 390,000, it is anticipated that subsequent economic growth will remain at negative levels, putting the country into technical recession by the third quarter of 2020.
But if the newly-enacted omnibus Job Creation Law could be implemented smoothly starting next year, the property market, especially those of the top-end residential sector could get a boost as the law eases foreign property ownership restrictions.
Given strict social distancing, activity levels across most business sectors in the capital including real estate have dropped quite considerably since March. The easing of large-scale social-distancing restrictions (PSBB) which began in June provided some relief for companies and business owners but before normal business could resume, the Jakarta government decided to pull the emergency brake and return to stricter PSBB measures in mid-September on the back of a rising second wave of cases. The PSBB restrictions were eased again in mid-October.
Retail landlords who had already picked up the additional costs for new normal procedures in their malls, continued to suffer as their traffic dropped further to only around 10-20 percent of pre-COVID levels. Meanwhile, residential developers now depend on online platforms and social media to market their projects. Some of them have achieved good results such as Ciputra who have reportedly collected total sales of around Rp 250 billion (US$16 million) from their housing project online sales in the past six months.
While affordable landed house developments are still performing, apartment sales have remained very quiet, which has caused some developers to offer their projects for bloc sale at higher discounts to willing buyers and investors.
Aside from apartment projects, various asset types are currently being offered at distressed values particularly land banks and hotels but also retail malls – this is quite unusual considering that Jakarta is historically seen as an “illiquid” and “tightly held” market compared to others in this region.
This will provide a window of opportunity for investors to acquire good assets at attractive prices with robust long-term prospects. Meanwhile, the long-awaited omnibus law which was approved by the House of Representatives in early October is expected to bolster the property market, notably of the top-end residential sector.
The omnibus law eases foreign property ownership restrictions. Foreigners with work permits are now allowed to own apartments on a strata-tile basis and this is expected to boost the luxury apartment market which target expatriates.
In general, the new law aims at strengthening Indonesia’s competitiveness in attracting foreign investment by removing regulatory barriers and overlapping and contradictory regulations, streamlining licensing bureaucracy. The law amends 76 prevailing laws related to investment, permits, labor, land for infrastructure development, taxation and government administration as part of an eff ort to cut red tape.
Despite protests and opposition from a number of organizations, many believe that the omnibus law will enhance Indonesia’s competitiveness in the regional and global economy.
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The writer is director of research and consultancy at Savills Indonesia.
