The Indonesian Real Estate Developers Association, or REI, is calling on the government to relax rules on property ownership for foreigners by extending them the right to purchase leaseholds titles to apartments and houses for a minimum of 75 years, or even allow them to purchase property outright.
The tight restrictions on foreign land ownership were originally introduced by the Agrarian Law in 1960 as part of a effort to force remaining Dutch property owners here to sell cheap and quit Indonesia.
Teguh Satria, the chairman of the REI, said that by relaxing the current strict regulations, the countryâ€™s property market could become as competitive as those in neighboring countries, such as Singapore, Malaysia, Vietnam and Thailand. It would also help property sales, which were expected to decline as a result of the crisis, and create a multiplier effect that would boost economic growth.
â€śIf we continue to restrict titles to a maximum of 25 years for foreigners, we wonâ€™t be able to compete with neighbors,â€ť Teguh said on Wednesday. â€śWe donâ€™t have to worry that we are selling land to foreigners, because if we sell an apartment, we are selling the space, not the land. We can keep restrictions on ownership so that only locals can own land.â€ť
He said that easing the regulations would not in reality result in such radical changes as foreigners were already purchasing properties in Indonesia using Indonesian nationals as intermediaries.
Teguh said that if the government liberalized the ownership regime, 10,000 more new apartments could be sold every year. â€śIf a unit costs $250,000, then this would generate an additional $2.5 billion a year for the industry; they will pay taxes to the government, they will spend money here, and the government and industry will benefit from the building of more apartments.â€ť
The financial crisis also presented an opportunity for increased sales of apartments as prices are cheaper here than in neighboring countries like Singapore, he said, adding that properties in Jakarta, Bali and Batam would attract the greatest demand from foreign buyers.
Hendra Hartono, property consultant PT Procon Indah's chief business development officer, said that if the ownership regulations were eased for foreigners, apartment sales in Indonesia would definitely increase, although it was difficult to say by what extent.
The main factor that dissuades buyers is the fact that they cannot obtain freehold titles, he said.
â€śIf they could obtain freehold titles, then they would be more interested in purchasing property here. Freehold title is much preferable to leasehold title, as, for example, they would be able to use their properties as collateral for loans,â€ť Hendra said.
Hendra predicted that this year would prove to be a tough one for apartment and overall property sales. He said that while demand for high-end apartments would not be overly affected, demand for cheaper apartments aimed at those in the middle- and lower-income brackets would suffer because of the crisis.
â€śFalling mortgage rates in the coming months will not do much to spur demand from these segments as consumer purchasing power is decreasing,â€ť he said.
Apartment sales have been slowing since the second half of last year, he added.
Anton Sitorus, a property analyst at Jones Lang Lasalle, said the existing regulations allowed foreigners to purchase 25-year leasehold titles, extendable twice up to a maximum of 70 years. However, the extension process was very complicated.
â€śIf a foreigner wants to buy property in Singapore, he can buy it directly without having to go through any of the convoluted processes that we have in Indonesia,â€ť said Anton.