Property analysts and developers share the same pessimistic projection that demand for all kinds of property will decline as the central bank continues to raise interest rates to cope with strong inflationary pressures and with a four-year low in consumer confidence.
This negative market sentiment, we think, is partly responsible for the revisiting of an old issue within the property industry -- the ban on foreign nationals owning property in Indonesia, as stipulated in Law No.5/1960 concerning land ownership. The law provides five kinds of rights over land and buildings, but foreign nationals are entitled to only three of them, namely the right to use, the right to cultivate and the right to build.
And even these rights can only be exercised for a certain period of time, ranging from 25 to 35 years, extendable for another 25-35 years under strict requirements, thereby putting investors at the mercy of the National Land Agency, which unfortunately is not included among the most efficient of government institutions in our country.
Property developers and analysts are hoping that easing restrictions on foreign nationals owning property would partly offset the slackening demand from domestic consumers. Moreover, they argue that the reasons for imposing such severe limitations are no longer sensible and logical in the current era of globalization. The drafting of the highly restrictive land law in 1960 -- only 15 years after the nation's independence from colonial domination that lasted hundreds of years -- is understandable to an extent as the politicians of the time were still highly xenophobic of anything related to foreign presence.
However, the core issue here is much broader than simply stoking foreign demand for property to offset the expected decline in demand from domestic consumers.
The total ban on foreign nationals owning property in Indonesia has long been a major disincentive to investment from overseas, notably small and medium enterprises. Analysts have warned that Indonesia has failed to attract many foreign small and medium-scale investors -- who are precisely the kind of businesses the country needs due to the labor-intensive nature of their operations -- because of the overly restrictive regulations on them owning property and the consequent legal uncertainty caused by these excessively restrictive regulations.
The restrictions and the arduous bureaucratic and regulatory procedures to obtain the limited right of use, right to cultivate and right to build not only causes a high degree of uncertainty but also punitively high costs.
In Bali, for example, quite a number of retirees from Europe and the United States who would like to spend the rest of their lives on the island of gods are forced to use an Indonesian nominees in an attempt to secure their property (homes), circumventing the ban but risking becoming embroiled in disputes or being cheated at some point.
Easing the restrictions on foreign nationals owning property would serve to eliminate some of the uncertainties of property ownership in this country.
One should not dread of the possibility of foreign nationals becoming powerful landlords, because we are not talking about lifting the restrictions on rights of use or the right to cultivate and the right to build that may involve hundreds or thousands of hectares of land.
What property developers and analysts have been recommending since the 1980s is the lifting of the ban on foreign nationals buying and owning residential property. What risk is there to either the economy or national security if foreign nationals are allowed to own apartments/condominiums or luxury houses in Bali and other resort areas?
On the contrary, allowing foreign nationals to own homes will not only strengthen the demand for residential property, but will also create legal certainty and will make overseas investors feel as though they are welcome here.
This is the point the government should take up in the bill on investment, which will soon be proposed to the House of Representatives to unify the 1967 foreign investment law and the 1968 domestic investment law.
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