Property for foreigners

Property for foreigners

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 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 for mining or plantations.

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 really 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.