Local property is for all<\/p>\n
By Martin R. Jenkins<\/p>\n
JAKARTA (JP): As Indonesia is a nation born out of a 350-year
\nindependence struggle against Dutch colonialism, it is perhaps
\nunderstandable that foreign companies and individuals are barred
\nfrom owning either Indonesian land or property.<\/p>\n
Opposition to the foreign ownership of land or property in
\nIndonesia is governed by the nation's Basic Agrarian Law, enacted
\nin 1960, when enmity for the \"imperialist West\" was still at a
\nhigh.<\/p>\n
At present, however, such restrictions on foreign ownership of
\nland and property have far-reaching consequences for the
\nIndonesian land and property market, and for the health of the
\neconomy in general.<\/p>\n
The above law rules that there are currently two categories of
\nland rights: adat land (customary land), which is unregistered;
\nand certified land, which is registered at the local land office.
\nThere are five principle types of land rights for certified land.<\/p>\n
The first is hak milik, which is equivalent to freehold title
\nin common law jurisdictions. This title, however, can only be
\nheld by an Indonesian citizen, and not by a corporate entity,
\nwhether local or foreign. In terms of land mass, only about 1
\npercent to 3 percent of land in Indonesia has hak milik title.<\/p>\n
The other four types of land rights are the right to build
\n(HGB), the right to rent, the right to use and the right of
\nexploitation. Although foreign companies can obtain these rights,
\nthey are excessively restrictive as the property must be directly
\nused for the approved project and the rights must be renewed
\nafter a certain number of years.<\/p>\n
These types of land rights also impede spatial land planning,
\nbecause if use of the property ceases, changes, or passes to a
\ncompany or foreigner, then the title may be handed over to the
\nstate.<\/p>\n
By far the most damaging effect of prohibiting the foreign
\nownership of land or property is that it represents a significant
\nobstacle to foreign direct investment (FDI), thereby hindering
\ncapital inflows, with the result that economic opportunities are
\nlost.<\/p>\n
Without land ownership on which their factory is built, a
\nforeign investor faces greater risks in relation to the host
\ngovernment's future policies. Foreign investors are also unable
\nto use the land as collateral for raising funds on the domestic
\nmarket.<\/p>\n
Although Indonesia was successful in attracting FDI prior to
\nthe economic crisis, this is no longer the case. Furthermore,
\nwith increasing globalization and intense competition for FDI
\nfrom countries such as China, Indonesia will find it even more
\ndifficult to attract FDI unless such obstacles are removed.<\/p>\n
Given the nation's poor financial health, with huge foreign
\ndebts and a crippled banking sector, FDI is key to promoting
\neconomic growth.<\/p>\n
Permitting foreigners to own property in Indonesia would also
\nbreathe new life into the decimated property sector, which has
\nnot recovered significantly since the economic crisis broke out
\nin 1997. The liquidity of the property market would improve and,
\nmost importantly, property values would rise, better reflecting
\ntheir fundamental values.<\/p>\n
Would it not be to the benefit of Indonesia if a foreign
\nbusinessman who spends a lot of time here could purchase a
\ncondominium or residential property, for example?<\/p>\n
Through the purchase of such a property, a significant amount
\nof money would either flow into or stay in the country, the
\ngovernment would receive property taxes on a regular basis from
\nthe foreign owner, and also, importantly, the foreign owner would
\nshare in the risk of the property market nosediving sometime in
\nthe future.<\/p>\n
While it is easy for opponents to the foreign ownership of
\nland and property in Indonesia to stoke up nationalist sentiment
\nby warning of the \"potential dangers\" of letting foreigners own
\nIndonesian land or property, it should be realized that such
\nfears are unfounded.<\/p>\n
Some nationalists within Indonesia might assert that foreign
\nownership of land would be tantamount to the loss of sovereignty
\nand control. But this has not deterred other nationalist
\ncountries such as Malaysia and India from relaxing their
\nrestrictions on foreign ownership of land and property. The
\nsimple fact is that land is immobile. Even though the ownership
\nof the land may change, no one can physically take it away.<\/p>\n
There are even those who express fear that the foreigners,
\nespecially those from the rich industrialized West, would \"buy
\nup\" Indonesia given their huge spending power.<\/p>\n
It should be appreciated, however, that other legal mechanisms
\nsuch as foreign exchange controls, limitations on the amount of
\nland or property that can be owned by a single party, appropriate
\ninvestment approval policies and land tax can have the same
\neffect as outlawing the foreigner ownership of land and property.<\/p>\n
Foreign companies could be restricted to owning a certain
\namount of land, for example, while foreign individuals could face
\nrestrictions regarding the number and types of property they
\ncould own.<\/p>\n
The law also smacks of double standards given that large
\nnumbers of Indonesian politicians and businessmen own properties
\noverseas, especially in Australia, Singapore and the United
\nStates.<\/p>\n
Quite frankly, why should Indonesians be allowed to own
\nproperties in those countries, if citizens of those countries
\ncannot own properties in Indonesia?<\/p>\n
At the end of the day, it is actually in the nation's best
\ninterests to see its assets owned in a way which means that they
\nare used in the most productive and efficient manner possible.<\/p>\n
The writer is a consultant with a securities firm in Jakarta.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/local-property-is-for-all-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }