The government seems likely to issue a long awaited regulation next year allowing non-nationals a restricted right to own some forms of real property, such as apartments, in a move that is expected to further fuel the growing property market, Indonesian Chamber of Commerce and Industry (Kadin) chairman Muhammad S. Hidayat said Friday in Jakarta.
While it remains unclear precisely what types of property are involved, Hidayat said that President Susilo Bambang Yudhoyono had, in principal, agreed to open the country's property market to foreign buyers.
"It was agreed during a discussion last month with the President, National Land Agency (BPN) chairman Joyo Winoto, property developer Hendro Setyawan and myself, that a form of foreign ownership would be legalized in 2007," Hidayat said.
Speaking at the annual meeting of the Indonesian Real Estate Developers Association (REI) in Jakarta, Hidayat said a presidential regulation would likely be issued to permit foreigners to own some forms of real estate as revising the existing Real Property Law would take too long.
"There is a legal breakthrough on the cards. We expect that it will take the form of a presidential regulation. I have suggested that title take the form of a fixed-term building use right (HGB), up to a maximum term of 70 years," he said.
Under a 1996 regulation on foreign property ownership, foreigners are only allowed to purchase fixed-term HGB titles up to a maximum of 25 years. However, besides the term being very restrictive, the regulation has never actually been implemented on the ground.
As a follow up to the discussion, Hidayat said, the BPN chairman had invited REI members, notaries and other stakeholders to participate in further discussions with a view to drafting the new regulation.
"Hopefully, the regulation will be put on the books in 2007. Given this, I hope that foreigners will become more willing to invest in Indonesia," he said.
Hidayat, who was also a former REI chairman, said that the real-estate industry had long been urging a change in the regulations so to allow non-nationals to purchase real property in Indonesia, but progress had only recently begun to become apparent.
Indonesia lags far behind neighboring countries, such as Malaysia and Singapore, in opening up its property market to foreign buyers.
By comparison, Malaysia allows foreigners to purchase property under 99-year leases, while Singapore permits freehold ownership in the case of apartments located higher than 6 stories.
"Giving foreign buyers a chance to own property here is highly desirable. Not only will it benefit the property industry, but it will also support foreign investment in the country as a whole," he said.
Regarding the prospects for the country's property market next year, Hidayat said the industry was set to enjoy further growth thanks to an expanding economy and the recent fall in interest rates.
"The central bank rate has dropped considerably, from higher than 11 percent to what we have now, 9.75 percent. The government expects economic growth to reach 5.8 percent this year, and further increase to 6.3 percent in 2007. All this will undoubtedly produce a more conducive climate for the property industry," he said.
However, Hidayat added that the banking sector had been very slow to bring down lending rates in line with the reductions in the BI rate.
"I've been told they will need at least one year to bring down their lending rates so as to match the central bank," he said.