Expats Put Down Some Roots

By webadmin on 02:53 pm May 08, 2012
Category Archive

Shoeb K. Zainuddin

Indonesia’s property market is undergoing a massive transformation as the economy expands and a rising middle class demands better housing.

Some people are hunting for high-rise apartments in Central Jakarta, others for sprawling housing estates in Bekasi, Tangerang and Bogor, but either way, demand for property is growing fast, and many of the largest developers are responding with a building spree.

Demand for condominiums remained buoyant in the first quarter this year due to low interest rates, property experts say. And while sales in proposed projects declined slightly, they still hit a strong 2,039 units. The bulk of these sales were outside the central business district, which accounted for 67.1 percent of the quarter’s total sales.

Residential property prices have spiked along with the rising demand.

“In Jakarta, prices have gone up by 30 to 40 percent cumulatively over the past three years,” said Luke Rowe, a senior technical adviser at Jones Lang LaSalle, a real estate services firm.

Indonesians have fueled much of the push for property, but Rowe said the market would fare much better if foreigners were allowed to participate, as they can in Malaysia, Singapore and Australia.

“All three [other] countries have experienced strong growth in their property markets over the past few years by opening up to foreign ownership,” he said. “Malaysia’s second home policy, for example, has significantly broadened the country’s property market.”

Foreign ownership of Indonesian property has been widely debated but little progress has been made. Still, under the current system, some foreigners can buy land and buildings. Specifically, expatriates with work permits can use the Hak Pakai (right to use) land title, which grants the exclusive right to use land and any buildings on it.

The Hak Pakai title is valid for an initial term of 25 years but can be extended twice — for 20 years and then another 25 years. Titleholders may sell at any time during this period. When buying property, they should be Indonesian residents at the time of purchase.

“This is an attractive opportunity and many expatriates living in Indonesia have been active using this title,” Rowe said.

With it, expatriates possess legal standing and can take out a mortgage from some banks. Commonwealth Bank of Australia is the first foreign bank focused on extending mortgage loans to foreigners based in Indonesia.

These loans are known as consumption loans, and to qualify for them, expatriates need to have an Indonesian tax filing number and an active working permit, including either a KITAS temporary stay permit or a KITAP stay permit.

However, property sector experts say the Hak Pakai title has a flaw: It is not appropriate for the vast majority of apartment projects. That’s because at the time of construction, most developers opt for Hak Guna Bangunan (right to build) as the underlying land title, which is more acceptable to Indonesian buyers.

Although there has been some talk of amending the laws for land titles, it seems unlikely anything will change before the elections in 2014. For now, most nonresident foreigners cannot participate in the property market here because they cannot get a Hak Pakai title. Some, however, may have other options: they can use an Indonesian nominee or they can form a foreign investment company, which must have a purpose beyond owning real estate.

The most critical point, Rowe said, is that the property law system recognizes the legal certainty associated with leases.

“A lessee does not necessarily have to register a ‘registered lease’ because lease-holding over a property implies primary beneficial use rights until the expiry of such a lease,” he said.

This allows foreigners to take long-term leases on property, especially if the lease includes an option to purchase, which would be triggered in the event that laws regarding foreign ownership are adjusted in the future.