Land ownership limits prevent bank recovery
Land ownership limits prevent bank recovery
JAKARTA (JP): Offshore capital is giving crisis-hit Indonesia
a wide berth partly due to uncertainties over foreign ownership
of property in the country, according to a property consultancy
firm.
PT Procon Indah said in its latest report that Indonesia's
outstanding property loans stood at approximately Rp 69 trillion
(US$7.6 billion).
The major proportion of these loans were obtained to finance
the development of large offices, hotels, apartments and shopping
malls.
"The impact of a single $100 million loan for a city complex
has a far greater impact on banks' total outstanding loan balance
than thousands of individual houses and apartments," the report
said.
The report said that the key step needed to recapitalize the
country's ailing banking sector was to liquidate these large
nonperforming loans.
Indonesia has not seen any major property investment since the
crisis began while Thailand and South Korea are to receive
hundreds of millions of dollars from foreign investors through
liquidations of distressed banks' assets, the report said.
Besides political uncertainties, Indonesia had other problems,
including property ownership restrictions, land titles, high
taxes and unclear bureaucratic procedures, it said.
"Foreigners are still uncomfortable with the property
ownership process and restrictions in Indonesia. They are aware
of regulations such as No.41/1996 and a relaxation of
restrictions on foreign investment (PMA) companies owning
property. However, these processes have yet to be tested
adequately and investors are not prepared to risk being the test
case with $50 million or $100 million at stake," Ian David,
Procon Indah's technical advisor, said.
Regulation 41/1996 gives foreigners the right to own title of
houses or apartments of more than 150 square meters. Despite
recent improvements to regulations extending the right to 20
years, this form of title is seen as inferior to the right to
build title under which most major property is held. Converting
right-to-use certificates would incur additional costs.
"The market applies a discount to the right to use title as it
is seen as a lower form of ownership," the report said.
System
The Indonesian land tenure system remains a problem for
expatriates as a 20-year to 25-year initial term is considered
inadequate compared to those available in other markets.
The report said that the length of term was important because
expatriates wanted to own property in Indonesia for more than the
initial period.
"Besides that, it will reduce the value of the property if
they wish to sell it with 5 to 7 years remaining," the report
said.
Procon Indah said the success of the recapitalization of the
country's banking sector would be greatly enhanced by an overhaul
of the land title system and foreign ownership regulations.
"As this will be a longer-term process, the government should
consider a special purpose company such as Thailand's property
funds to be set up in the near term," the report said.
The report said that these companies would be granted status
to acquire major properties in order to recapitalize banks.
In the case of Indonesia, the report said that these companies
should be given favorable tax concessions, at least in the early
years.
"These companies could then be listed on local bourses,
enabling Indonesians to own shares in these substantial
properties," the report said. (aly)