From The Jakarta Post

More reform needed to open up property sector

Anissa S. Febrina, The Jakarta Post, Jakarta

Opening up the property sector to non-Indonesian nationals will apparently require a thorough overhaul of the relevant legislation and regulations, including those on residency, taxation and investment.

"What good would it be to let expatriates own property in Indonesia if getting a permit to stay here is so difficult?" asked Thomas, a Canadian working for a local Indonesian bank who was unwilling to give his last name, on Thursday.

In responding to calls to extend the property rights of non-nationals in Indonesia, the government has laid out proposals to extend the leasehold period permitted to expatriates to up to 50 years from the current 25.

However, while welcoming the proposals as a first step, market players and analysts suggest that such a change would be of little significance given the existence of various other factors obstructing individual non-nationals from investing in the sector.

"It is more complicated than simply extending the leasehold period," Thomas added.

The government also needed to ease the residency regulations, and provide tax incentives and facilities to encourage overseas nationals to invest in the sector, he stressed.

Handa Sulaiman, an executive director of property consultancy firm Procon Indah, suggested that Indonesia look to Malaysia in this regard, pointing to how Malaysia's property sector had benefited from its government's policy of making it easier for foreigners to stay in the neighboring country and own property there.

He cited as example the "Malaysia-My Second Home" scheme, which allows expatriates to stay in Malaysia indefinitely based on a multiple-entry pass as long as they can show that they have deposited RM100,000 (some US$27,200) with a local bank, or enjoy a monthly income of RM7,000.

The program had so far seen more than 2,800 applications since its launch in 2002, and had benefited the local property market, although non-Malaysian nationals were still only allowed to purchase property worth RM150,000 or over.

She added that Thailand also offered a similar program.

Overseas nationals in Indonesia, by contrast, can apply for a retirement visa, but each visa is only valid for one year.

"If the government is concerned about the public interest, it could adopt the restriction applied in Thailand to the effect that expatriates can own no more than 49 percent of the available units in an apartment block," Thomas said.

Currently, the annual return on residential property investments in Indonesia -- which mostly depends on location but can reach up to 13 percent -- is higher than that in Singapore, Thailand and Malaysia.

However, unlike Indonesia, Singapore and Malaysia do not impose capital gains tax on property investments.

Handa said that the government should restrict foreign nationals' property rights in terms of setting a minimum purchase value only, as was the case in Malaysia.

He added that restricting non-Indonesian nationals from buying secondhand property, thereby only permitting them to purchase newly-built property, as had been suggested by the Indonesia Real Estate Association (REI), would benefit no one except large developers and risk foreign investment in the property sector being confined to the capital.
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