After sending mixed messages at times this year, the Indonesian government said it is proceeding with plans to liberalize the domestic real estate market, but foreigners will not be allowed to own property outright, though it will be made easier for them to secure leaseholds of up to 70 years in duration.
However, any proposed changes may take a long time to be realized because they would require the approval of the House of Representatives.
Zulfi Syarif Koto, the deputy of formal housing at the Ministry of Public Housing, said the ministry was still in the process of working on changing the regulations.
“We are the only ministry responsible for this, so we must be careful that we can still protect our national interest,” he said.
Under the proposed regulations, foreigners would still not be able to own property outright, Zulfi said.
“We are still in discussions with various government departments,” he said.
Currently foreigners can have a right to use, or effectively lease, apartments, but not land or freestanding houses, for up to 70 years. Under the right to use foreigners sign a convertible lease agreement with property management companies or use the name of an Indonesian citizen whom they have a separate agreement with. Foreigners must also periodically renew their right to use. Initially they can hold the property for 25 years after which they need to extend for another 25 years and then a final 20-year term.
In May, the government shelved a plan to extend this to 90 years but said it would simplify the extension process.
This came after Housing Minister Suharso Monoarfa said in January that the law would be changed to allow expats to buy houses in special economic zones, such as in Batam and Kalimantan, where overseas companies receive incentives to run factories, and foreigners living in cities would be limited to owning apartments.
Industry players were disappointed this month after a major conference of real estate agents in Bali ended without the expected announcement from the government that the sector would be liberalized. Some blamed nationalist sentiment for blocking the changes.
Still, Suharso left many at the conference hopeful that changes would come.
“Limiting foreign ownership is no longer the right approach,” he was quoted as saying by the New York Times.
Now the government is considering giving foreigners to the right to an initial lease period of 70 years, rather than go through several extensions.
Anton Sitorus, the head of research at PT Jones Lang LaSalle Indonesia, said that to attract foreigners, the government should announce the revised regulation quickly with a clear definition of property ownership.
“We have tried to monitor this issue. Ownership rights are the most important thing for foreigners. The government should sort it out quickly,” Anton said.
However, he said he was not optimistic the regulation would be introduced soon because giving foreigners would require amendments to the current law.
“That means dealing with the House of Representatives, which will take a long time,” Anton said.
Gita Wirjawan, chairman of the Investment Coordinating Board (BKPM), said that opening up the property sector to foreigners would have a positive impact on the property market. Foreigners would inject a large amount of capital into the Indonesian market and make the local property market more robust, he said.
Teguh Satria, chairman of the Indonesian Real Estate Developers Association, said in May that there were around 83,000 foreigners living in Indonesia. If 10,000 of those foreigners bought a $250,000 apartment, for example, it would translate into $2.5 billion of foreign investment, Teguh said.
According to a Jones Lang LaSalle report, demand in Jakarta’s luxury residential market for both purchases and rentals was “weak” as of the end of last year, and expected to remain stagnant, though with mild improvement, this year.