Indonesia to revise rules to allow foreign investment in real estate

The Indonesian government is finalising new rules that will permit expatriates to buy luxury homes in the archipelago.

Analysts said it was a positive step forward but might not result in a flood of property sales because foreign buyers might still be put off by high property transaction costs.

According to the existing law, foreign nationals are not allowed to own land or property under freehold title; only leasehold is permitted.

The Ministry of Housing has indicated that the rules are expected to be revised by the end of this year. Foreigners can own properties under a longer leasehold term and it can be granted or transferred to their children.

Under the new rules, foreigners would need to buy a property valued at more than five billion rupiah (HK$2.9 million), according to media reports in Jakarta.

It is hoped that foreign ownership will boost investor confidence, expand the market to international buyers and help reverse the country's economic slowdown, according to analysts.

Hasan Pamudji, associate director, professional consultancy and valuation, at Knight Frank Indonesia, said the revised rule was not expected to boost property sales significantly because of transaction costs that account for as much as 40 per cent of the total transaction value.

"Competitiveness remains in question as other neighbouring countries such as Malaysia, Singapore and Australia offer much lower transaction costs," he said.

There would be two types of foreign buyers under the revised rules. The first would be foreigners who have attachments with Indonesia, including through marriage, relatives, business or work.

"These people may buy properties under the revised rules due to necessity and social attachment with Indonesia [and will do so] despite high transaction costs," Pamudji said.

The second type of buyer would be wealthy individuals who want to invest or purchase a second home. These buyers may not want to invest due to the high transaction costs, he explained. Other countries may provide more appealing terms for investment, he added.

"Bali, Batam and Bintan may benefit from the revised rules as these locations have been attracting more foreigners in the past years," Pamudji said.

Marius Toime, a partner at Berwin Leighton Paisner, said: "This is a positive step in showing Indonesia is open to foreign investment and committed to providing greater transparency for developers and property buyers.

"Cutting red tape and enhancing regulatory certainty should go a long way to welcoming more foreign investment in Indonesia," Toime said.